My buddy Sid,

In the next 60 days, I need to raise $25,000 in cash to buy my next rental house. This is not a fixer-upper. This small 3/1 house is owned by an investor / associate of mine that lives in another state. The house is in mint condition, good neighborhood, worth about $50K retail and the investor will sign over the Deed in exchange for $25K. The house even has a good 3-year tenant paying 620.00/month.

The owner needs cash to finance another investment, so 'owner-financing' here is not an option (I did ask for it).

My credit is good enough to where I could go to my bank and just borrow the money, however, I would prefer to keep this option as a very last resort. Like you, I don't want to become a 'slave to the lender' if I can avoid it.

Sid, I would like you to make some suggestions on how I can raise $25K without having to deal with Wells Fargo.

Roy, this scenario would panic most investors into the arms of a lender. A few non-debt options off the top of my head.

1) Investor/partners who can fully / partially fund the deal in exchange for profit sharing and return of principle. Rather than them loaning you money and expecting monthly payments plus interest, they directly take on the risk of the investment based on your relationship and experience managing properties and get paid out of profit sharing. You meanwhile manage the property and continue to raise cash to buy out their interest at some point in the future (3 - 5 years). Some may say this is overly complex and/or "the same thing" as borrowing money from the bank. Not so. Fellow investors do not get to sue for repayment if the deal goes bad. The profit sharing model also ensures you actually MAKE a profit, which with this cash cow ought to be easy to show to investor/partners.

2) How much cash does Mr. Seller need TODAY? The whole $25K or less? Could you do two installment of 1/2 now, 1/2 in a year, using cash flow from this and other properties to raise the remainder of the purchase price?

3) Do you have access to any funds that wouldn't be hit by penalties for early withdrawal? Retirement accounts, CDs, bonds, etc? I'd be okay paying a couple thousand in taxes to land a deal worth $50K for a meager $25K purchase price.

Three day funding services.

Lemonade stand?

You mean legal ways right? :-)

LTD,

If I could make $25K a month flipping houses, I would be flipping houses. The few houses that I have flipped cleared less than $5K and that is why I rent houses instead of selling them. My small working class town is a effing goldmine for a buy and hold investor mainly because few people here can save up enough for a 10% down payment. They can afford to pay the rent though and that is where I rake it in! :)

Homer: I think you're missing his point. He's trying to do it without debt. It isn't that the bank wouldn't loan it to him -- they will. It is that he doesn't want to be in debt to anyone. Therefore, most of your suggestions don't work becaue they are all just other forms of debt (peer-to-peer lending site, hard money lender, HELOC on rentals, credit cards even at 0%). All of those are debts that he is trying to avoid. If he didn't mind the debt (like me in this situation), then he'd just go to the bank and borrow it like he mentioned he could in the first post.

- John...

Roy, thank you for reaching out. I know that trying to grow real estate empires debt-free is tough. I look around and see deals all the time that I'd love to jump on, but realizing that isn't the way I wish to live my life means I have to look for other ways.

Some folks have asked me how I can leave all these deals to to others. As a believer in God's Word, I simply have to submit to his Will on this. I can't explain it or prove it on an Excel spreadsheet. Not everyone here follows the Biblical view of debt, which is simply stated, "Debt isn't God's plan for people." I don't expect everyone to follow this, in particularly if they don't believe that the Bible is true. But I can tell you that over the past 8 years following this model--believer or not--it IS doable, it DOES work, and it IS a blessing to us.

Homer,

I always appreciate your 2 cents worth,...especially since you are one of the few people here that will admit to 'dancing with the devil'. Those 0% offers are enticing until you read the very fine print.

I agree on the idea of a HELOC. I've got one from Wells Fargo using my own home and while I was conservative, only taking out 50K I've used it to buy 8 or 9 of the houses over the past years. I could pay off what is owed on it today but I'm at the point where I need some deductions for taxes. I don't consider myself as a slave to the lender.

Just for giggles I ran an estimate of a monthly payment for a 25K HELOC from Wells Fargo on property with no mortgage (had to use my county and state of course) and the estimated monthly payment would be $110.

Let stop all of this talk about selling blood. I am not that desperate.

I will borrow the money at 5% interest (Heloc) and repay it at the rate of $2,000/month.

I think Gail has it. Sell another asset. I'd borrow, but if you don't want to borrow then there are only two other ways: make the money working, sell assets or futures, and gamble.

Dave T

All of my rental assets are earning at least 20% after expenses. Why would I want to sell any of those cash cows?

Sid, I, along with others on this board, respect your opinion, but there are some flaws in the logic of your first post. Option #1 Profit sharing is the investor buys part or all of the house. Roy wants to by the house, not manage it for another owner. And profit sharing certainly does not ensure that a profit will be made.

#2 Roy said the seller wanted cash, and even if not, this is borrowing from the seller rather than the bank, and I see no religious difference from whom we borrow. #3 is especially poor financial advice. ALMOST NEVER IS CASHING OUT A RETIREMENT ACCOUNT PREMATURELY A GOOD IDEA. Tax deferred, immune from most bankruptcy and legal judgements, they are the regular guy's best shot at a decent retirement. If Roy had thousands sitting in CDs, etc., don't you think he would have tapped into them to finance this deal?

In the end, there is not shortcut to wealth, and if funds are not available to do deals, borrowing is the only realistic choice for 99% of borrows/deals.

you would sell a cash cow if this made you more money, right?

If the 25k isn't in your pocket right now, you're gonna owe debt to someone.

If it's a screamer of a deal, you should be able to find another investor to back you.

JR (ME),

The only reason I directed this post toward Sid is because Sid and I are fans of Dave Ramsey. Years ago, I read one of Dave Ramsey's books where he talks about paying off your debts using what he calls the 'snowball method'.

In the last 12 months, using the DR snowball method, I have paid off a $20,000 debt. Starting in October, I was going to start making payments on another similar debt with the goal of paying it off in less than 12 months. Then on and on until all of my short term debts were paid off.

Then life happens. A great RE deal comes along and I need cash. I can get the cash, but it means having to climb back down into that same debt hole that I just got out of !!!

So, when I made this post, I was 'grasping for straws' trying to figure out if there was a way I could buy this house without climbing back down into that old debt hole that I know so well.

I don't see anything wrong with "managed debt".

Spending for extras or nonnecessities on credit cards is not a good idea.

Borrowing to purchase a good deal would be a no brainer for me.

Roy, I think DR would say to pass on the deal and clear yoyr other debts, smallest to largest. BUT, Dave doesn't always take local situations into consideration. His advice is more geared toward the workaday person, not an entrapanuer.

What if you buy this, will you be able to increase your snowball, net income in a reasonable time? Or are you risking your other assets if there were major setbacks?

I wonder if anyone has done crowd sharing, GoFundMe or KickStarter.

Although I might chip in with the other ladies for a strip show at the next convention. ;-)

JR, I think you misunderstood how the partner/profit share model works. If you'd like to learn more about this, check out Jim Ingersoll.

Roy, I see you're going to go ahead with the purchase using borrowed funds. No worries; we're still good friends. (grins) I hope this deal work out well for you. Incidentally, I submitted an offer on the little gem I viewed yesterday over lunch...will let you know how it comes out.

"What if you buy this, will you be able to increase your snowball, net income in a reasonable time? Or are you risking your other assets if there were major setbacks?"

LTD - That is the big unknown million dollar question.

When you are self-employed as a LL (no day job to bail me out of a bad $$ decision),..you have to be extra careful how you manage money. Debt or just how much debt is 'too much debt' is always a big unknown factor. The downside to having a high Fico score and assets, is that every banker in town wants to loan you money but it is the type of money that comes with a VARIABLE interest rate. If I had a guarantee that variable interest rates would stay low, I could live with that. However, if they were to rise back to 6% - 8%, I could get caught with my pants down.

Tyler (NC)

In the past, I have sold houses mainly just to get out of a neighborhood that has gone bad. When bad neighbors (crackheads/SO's) move in around you only because the LL does not screen, well, the only thing to do is sell and go find a better neighborhood. I had to do this on 2 occasions.

Selling RE is my town is a PITA since most of the realty agents here are incompetent. Even when I sell without a realtor, it is long time (min. 6 months) from the time the For Sale gets posted to when the closing check clears.

Once the check clears, it another 3-4 months to locate your 'next deal' and get it closed, rehabbed, and rented again.

The deal I have now is almost perfect. I get immediate cash flow once the big check is passed to the seller. Here I am buying a 'stream of income' that pays 20% from day one. Wouldn't you borrow money at 5% if you could turn around and receive 20% ? It is all a numbers game here.

Roy,

I'd sell something making 20% if I could buy something else that makes 20% on sale for 50% off! But I read your post about how long it takes to sell. And so that won't work. Sell your car? :)

I've never done it before, but I read that you can "borrow" from your IRA or 401k and return it within... 60days?? and there's no penalty. Is that right? If so, then could you buy this place by 'borrowing' from yourself (not really borrowing, unless you count 'borrowing' from your savings account as borrowing...) then sell the place within 60 days? Couldn't you sell that fast if you discounted heavily?

I guess i have to add one more category to my list:

make the money working,

sell assets or futures,

gamble

Crowdsource money (i.e., beg)

Roy, have you thought about trying to wholesale the property for a quick profit?

I would get it under contract, and then try like hell to make contact with buyers in your area.

You could also do a single pay note due in a year, this will give you time to pay the note down or off.

Or could maybe retail (list it) for the first time home buyer.

Lots of options without long term debt.

There is nothing wrong with debt if done wisely.

In 2003 I was paying 8.75%

Today I pay 3.5% -4%

,,,In 2003 I was paying 8.75%...

Here is a strategy to consider: get property under contract. Sell it to an investor- pocket 10%, sign a property management agreement with the investor paying the Roy management co 12% of the gross rent. If you think that you need more have them sell you an option to buy the property. win/win/win.

Roy, in reading your comments again. My advice would be to stay your course. Pass on this deal and get those variable rate loans gone, or if feasible convert to fixed 15 year or less, because they WILL eat you up.

Then, move forward from a position of strength. Can you pay everything off in 5 years, three? Then you are at 100% cash flow and from your info ought to be able to add a new house for cash every year.

Also, this is not your usual $5,000 house. Are you sure the market is there to move into a higher price point in your merket. You know what has worked. Sounds like the area is not one with good resale options, so you are buying income. Income is best with the cheapest property.

If you take more debt can you pay it all off fast if rates rise?

buy it. this is the definition of a cream puff cash flow winner. take the loan and let the banks money fatten you.

Might not be appropriate for this scenario but for smallish dollar amounts like this, much cheaper to do what Gail said - use credit card checks - interest free for 18 months - they will charge 2-4% up front but for $25k that us practically the same as a mortgage application fee plus appraisal.

This works best if you have a day job and think you can pay it off in the 12-18 months (so like I said, maybe no applicable to Roy).

Roy,

Stay the course. Put YOUR goal first or you will constantly be distracted. Pay off your debts to in rease your profit. Then you can buy any deal you want. Deals will come and go every day.

Or if you have lots of time to devote,

This deal is screaming SELF DIRECTED IRA!!! Your IRA can borrow money, then sell it for a handsome profit TAX FREE. Use THAT money to meet your goal of debt reduction.

Or...put this under contract and sell the contract for cash. Never needing to borrow.

I am SO confused about not wanting to borrow money to purchase real estate. One of my houses has a mortgage payment (principal & interest) of $164. Another $346. Another $267. If I paid them off, it would take me about 3 years of pocketing that money to buy Roy's newest deal.

Borrow now, make a good deal and keep moving forward.

Nicole (PA)

Borrowing money has a uncanny way of becoming addictive. And like any addict, there is a personal limit (or should be) on just how much debt to 'get high on'.

Nicole Pa, I agree with you. I have a D grade duplex. I paid $15,500 for the roach motel. It's financed for $110 a month. It makes me $600 a month CF. If I paid it off, it'd take me 10 years to recoup my money.

I'm better off taking the $14k and doing another flip or smaller rental.

I've locked horns on this many times on here before and don't have the time or energy to do so again.

All in all, I think it comes down to where you're at when the deals present themselves.

If I have a screaming deal on the table, I fund it. However I need to, as long as it's legal.

If you don't have the cash, but the deal still has meat on the bone....whole sale the deal to another local investor.

Sell it for $35,000. I would even tell the buyer that the 35 can be $25K cash and that you can carry the 10K note for a year.