First off, if you've got a real estate coach, you should ask him/her.
Different ones have different strategies/approaches for investing in
real estate using other people's money. There are literally dozens you
can use. Let's see...where to begin...
First, there are 100% loans made to investors. They're not
cheap--usually structured as 80%/20%, with the second at a pretty high
interest rate. And there are a lot of fees rolled into that 100%. But
if you've got a decent credit score, you can get one.
Expanding a bit on my answer above, there are full-doc, low-doc, and
no-doc loans. Full-doc will carry a lower interest rate than low-doc,
etc. Again, the higher your credit score, the better. Each loan will
"ding" your score a bit, so you may be able to get that first loan,
and maybe even a second, but the third might be difficult.
Moving on... If you can get a property for no more than about 70% of
ARV (after repair value) minus repairs, you can use a "hard money"
lender. These are very high interest loans for 6 months to a year. The
nice thing, though, is that they lend on the asset value of the
property, not on your credit or income. So, if there's a property
that, rehabbed, is worth $500,000 and needs $20,000 of repairs,
they'll lend up to 70% of $500,000 ($350,000) minus $20,000...or
$330,000. Their rates are in the range of 16% per annum and 5 points.
But it's no money down, and you don't owe them anything until the end
of the loan.
Let's move on from loans (there are a lot of other possibilities
there) to owner financing. Say you find a place you want to buy and
the owner doesn't need all of his equity out. You can do a
lease-option, lease-purchase, contract for deed, or wrap mortgage. All
of these run the risk of triggering the seller's due-on-sale clause in
his mortgage, but that's not a major problem. Quickly: In a
lease-option, you lease the property from the owner with the option of
purchasing it at the end of the lease. The transaction: "Mr. Seller.
I'd like to lease your house for $1,200 a month. Give me a $100 a
month credit toward the purchase price. I'd like the option to buy
your property any time during the next two years for $160,000. If I do
decide to buy, you'll credit me that $100 a month, and I'll find
conventional financing to buy it from you."
In a lease-purchase: "Mr. Seller. I'd like to lease your house for
$1,200 a month. Give me a $100 a month credit toward the purchase
price. I promise to purchase your property any time during the next
two years for $160,000. When I do buy, you'll credit me that $100 a
month, and I'll find conventional financing to buy it from you."
A contract for deed (or land contract) works much the same as a lease-purchase.
There are some hybrid ways, too. (This one cost a few dollars.) The
first investment property I bought was a 2-level rambler with a
walk-out basement. I bought it with 5% down. The real estate agent
loaned me her 3% commission, making my initial out-of-pocket cost just
2%. I spent some money installing a second kitchen in the lower level
(using the real estate agent's husband, who was a contractor, to do
the work). I rented out the lower level of the house to a tenant and
lived in the upper level. The house (a number of years ago) cost
$129,000. The downstairs rent brought in $500, leaving me about a $600
mortgage...or $400 after taxes. So I bought a $129,000 house for 2%
down and monthly after-tax payments of $400. Today, the mortgage is
down to about $60,000 and the house is worth about $650,000. That was
a nice, nearly no-money-down deal.
Let's see...a few more ways. OK, how about a land trust? That actually
is a method that can be used to simulate a wrap, option, deed for
trust, or anything else. You find someone who wants to sell, but
doesn't need all their equity. They put the house in a land trust.
They then bring you in as the investor beneficiary. If you're going to
rent the house out, you then bring in a resident beneficiary. The land
trust converts real property into personal property, so you can divvy
up the ownership rights in a land trust. Structured properly, it can
be very attractive to outside investors who, for a share of the
profits upon the sale of the property, will put in the cash you need
for the transaction. So you're finding the property and (with expert
help) setting up the deal, then bringing in an investor. Generally,
the investor will want 15% or so return on their investment.
Or you can wholesale properties. You go out, find motivated sellers,
and have them sign a purchase contract with you. Your purchase
contract explicitly allows the contract to be assigned. And it
provides an "out" if you're not able to find a person to assign the
contract to. Generally, if you can get a property for 20% or more
under fair market value, you can find an investor to buy it. You
charge a wholesale fee--depending in part on how good the deal is, and
how much the property's worth. Some wholesalers charge as little as
$3,000 or so for an assignment; others won't do any deal unless they
can make $20,000 or more on it. (I know some very successful
wholesalers who have that $20,000 minimum.)
For very little money up front, depending on where you're located,
investing in trailer parks (whoops...mobile
homes....whoops...manufactured housing) can be very profitable. It's
sort of like lease-options: You buy an inexpensive trailer from a
motivated seller for maybe $5,000...using terms, if possible. Then you
offer it for sale for $9,000, offering terms. Maybe $2,000 down and
the rest on time payments...figured out to equal 18%-24% or more per
year. You make up your initial investment instantly, then get a very
nice cash flow.
Like I said, there are dozens of ways of investing without using your
own money. Your real estate coach should know all these and many more.
As for a business credit line, that's just something you set up with a
bank. First, you start a business--most real estate investors use
LLCs, though some use Sub-Chapter S...and some use a combination.
Generally, though, the bank wants you to be credit-worthy before they
extend a business credit line. Either that, or you'll have to
personally sign...which defeats the whole purchase of setting up an
LLC (to protect your assets). But your real estate coach should know
There are a lot of good books out there on real estate investing. Most
focus on a single topic--rehabbing, wholesaling, lease-options,
subject-tos, short sales, etc. You can try Amazon.com--they have a
lot. Or try a specialized site. Probably the best real estate investor
site is www.creonline.com. They have a very active bulletin board
(look for me--I post as Don(VA)--and they have a lot of books, tapes,
CDS, and DVDs for sale. But I'm sure your real estate coach knows all