Oh, boy…

I’m excited for you, because you want to buy a rental property. Good job!

So let’s say you have $50,000 to $200,000 that you’ve saved up. So do you put all that money down on the one rental property or do something else?

If you can’t afford to lose that money, please don’t use it all in the investment property. There are reasons I say this. Watch my video to learn more:

Using cash is good… but so is leveraging debt!

If you have the cash in pocket (or in the bank), using the cash will make the deal go faster.

Cash gives you the ability to negotiate better, too.

But once you use the cash it is in the property and you don’t have it to use on anything else. Once the money’s gone, the money is gone.  – Tweet  

So what else can you do?

Have you thought about leveraging debt?

By that I mean using only a portion of the money you saved and taking a loan out either from a bank or from friends, family and/or associates to pay for the rest of the property.

In the United States, you need about 25% to put down on the property as a down payment. Plus there are rules. Certainly if you have been smart is building your credit, you can get over any hurdle the lender throws at you.

With non-traditional lenders, there will be less paperwork. You are still obligated to make payments to your investor-backer(s), but your credit score doesn’t really matter. They are doing business with you because they like and trust you. (Of course, you need to build up your credibility first, which you can do by talking to a lot of people over time at networking events.)

So how does this work? Let’s say that you attend real estate investing networking events and you meet people who are looking to put their money into deals. You get to know each other and what the investors are looking to do with their money. After a time, they might just let you use their cash and credit in your deals. That’s exciting stuff.

You can structure the arrangement in a way that benefits both sides.

  1. You can borrow from a private lender and pay a specific interest rate over a specified period of time (a.k.a., 5 years).
  2. You can let the investor participate as an equity partner. In this arrangement you would agree to pay the investor a portion of the profits every month.

I don’t typically use the equity investor arrangement.

That’s because I prefer to use private lenders and structure the interest payments over time. At the end of that term, I owe the investor his/her original investment. For example, let’s say I borrow $100,000 from a private lender at 5% interest. That means I will pay the investor $5,000 per year until the end of the term or until I can refinance and pay the investor out in full. If I don’t pay off the $100,000 early, I will owe the investor the original $100,000 at the end of the term, which could be 3 years, 5 years or whatever we decide together.

There are benefits to this structure, but I won’t go too deep right now. If you have questions about this sort of arrangement, the best thing to do is get on the phone with me. I’ll explain everything. Here’s the fastest way to schedule a call with me:

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How you choose to finance your rental property is up to you. It has to be comfortable for you.  – Tweet  

If you decide to leverage debt and keep your money in the bank (so you can get more rental properties), that’s excellent. But if you want to tie all your savings up in a single property, who am I to stop you?  ; )

So, based on the information you just read, which path would you be more likely to take when buying a rental property… cash or leveraged debt?

If you like this type of information, I have excellent news for you. I release a new blog article every Thursday!

Plus, I love participating in conversations in all my social media channels. Why not become a part of the conversation? I promise that it’s really me giving you answers to your questions!!

Here’s a quick link to my private Facebook group page:

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You can also check out my latest podcasts and collaborations here keeponcashflow.com/podcasts/