In short
Three nontraditional ways to fund a first real estate deal without 20% down: hard money loans, seller financing, and capital partnerships.
Guests
No specific guest appears in this episode. Hosts are Ashley Karr and Tony J. Robinson. The episode references prior guests: Elizabeth Esplin (profited $200,000+ on a hard-to-finance, heavily rehabbed cheap deal) and Kimber (explained seller financing terms). Partnership examples reference Anthony (9 units across 7 properties; some with brother-in-law) and Dylan (partnered with a coworker for a 12-unit after house hacking a triplex).
Key claims
Hard money underwriting focuses more on the deal than the borrower; seller financing is flexible and negotiable; partnerships are best when you have time/skills but lack capital.
Notable examples
Elizabeth found a lender after others wouldn’t finance due to low price/high ARV; Kimber used a smaller down payment with a 5-year balloon; hard money risks include higher rates/points, upfront cost reimbursement timing, and miscommunication (Tony’s New York title issue).
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOUnderstanding Hard Money Loans
0:32 to 2:26
Explains what hard money loans are and their differences from traditional loans.
“And with that, let's jump into the different ways to fund your deal.”
Personal Experiences with Hard Money
2:26 to 4:55
Hosts share their experiences with hard money loans, highlighting challenges and lessons learned.
“I actually got a line of credit from a hard money lender.”
When to Use Hard Money Loans
4:55 to 7:39
Discusses scenarios where hard money loans are advantageous for rookie investors.
“of people who know better than me to ask the right questions or to use a different company and they have had great success with it.”
Finding the Right Lender
7:39 to 9:48
Advice on how to find credible hard money lenders and related search terms.
“I think, too, really looking at your deal as to if the deal is a good fit for hard money, too.”
Risks and Considerations
9:48 to 14:00
Outlines risks associated with hard money loans and important financial considerations for investors.
“Now, she still has some costs associated with it.”
Exploring Alternative Financing Options
14:00 to 15:01
Learn about options when traditional lenders are not available.
“for some of your personal assets if you don't sign the personal guarantee.”
Exploring Alternative Financing Options
16:00 to 16:12
Learn about options when traditional lenders are not available.
“of the Fundrise Flagship Fund before investing.”
Introduction to Seller Financing
16:12 to 16:46
Understanding the concept of seller financing in real estate.
“If you buy food at the airport, a burrito, salad, bag of peanuts, you start wondering if you should have opened a savings account for snacks.”
How Seller Financing Works
16:46 to 19:13
Detailed explanation of seller financing mechanics and benefits.
“Now, let's talk about a path that doesn't require any traditional lender at all.”
Identifying Suitable Sellers for Financing
19:13 to 21:43
Discussing the characteristics of sellers open to financing.
“but I think the question that rookies might be thinking is like, well, where are all these sellers offering seller financing?”
Show all 18 chapters
Structuring a Seller Financing Deal
21:43 to 24:41
How to negotiate the terms of a seller financing agreement.
“So her exact deal, we're going to go through it real quick, the down payment, the terms, the balloon.”
Risks and Considerations in Seller Financing
24:41 to 26:52
Important risks and best practices for seller financing agreements.
“amortization schedules, how long are we stretching those payments out?”
Transitioning to Alternative Wealth Building
26:52 to 27:11
Introduction to leveraging partnerships for wealth building.
“And we'll get right into it after this quick break.”
Introduction to Finding Rental Properties
28:00 to 28:27
Learn about the process and tools for finding strong rental properties.
“Finding a strong rental property usually takes time.”
Introduction to Finding Rental Properties
28:33 to 28:47
Learn about the process and tools for finding strong rental properties.
“Sign up for free and start exploring this smart investing opportunity today.”
Automating Rental Cash Flow with Baseline
28:48 to 29:52
Discover how to automate rental income management with Baseline.
“Realizing that scaling rentals shouldn't mean creating more work for yourself.”
Partnerships in Real Estate Investing
31:02 to 37:14
Understand the benefits and challenges of leveraging partnerships in real estate.
“All right, so we've covered how to find money outside of yourself, hard money lenders, seller financing.”
Equity Splits and Fair Partnerships
37:15 to 40:07
Learn how to fairly split equity between partners in a real estate deal.
“split equity when one person brings a deal and the other person brings money.”
Transcript
Automatic transcript. May contain errors.0:00Ashley Kehr:Most rookies sit on the sidelines because of a single number that doesn't actually apply to them. They think they need$50 ,000 in cash before they can buy their first rental. And that is just not true.
0:12Tony Robinson:Today, we're walking you through three real funding paths that have actually worked for past real estate rookie guests. And none of them require the typical 20 % down. None of them require even house hacking. And by the end of this episode, you'll know which path fits where you are right now.
0:31Ashley Kehr:This is the Real Estate Rookie Podcast. I'm Ashley Karr.
0:34Tony Robinson:And I'm Tony J. Robinson. And with that, let's jump into the different ways to fund your deal. So let's just start with the fundamentals, right? Because hard money is one of the terms that a lot of rookies have heard, but few can actually define. So in plain English, let's just talk about what is a hard money loan and how is it different from a conventional bank loan? So one of the biggest things, guys, is that hard money loans are typically built for real estate investors, These are built for properties that need to be renovated, properties that maybe wouldn't qualify for traditional financing.
1:07Tony Robinson:I bought a property once that had a big hole in the roof. I've purchased a property that didn't have a septic tank. Properties that in any normal loan situation probably would not get approved. And that's where something like hard money comes into play. So these are businesses that exist to lend money to real estate investors, to purchase properties that need oftentimes heavy renovations, which will then get either quickly sold or refinanced on the back end. And the way that these hard money lenders make money is they typically charge you higher interest, right? So whatever the prevailing interest rates are, you can assume that it's going to be a few percentage points higher.
1:47Tony Robinson:And then they'll also charge you points, which are basically fees for giving you this loan. And that's how they generate money, right? So that's the difference between traditional financing and a hard money loan. Now, I've actually never used hard money. All of our renovations we've done with private money, actually. Ashley, I know you've used some hard money loans in the past. How has your experience been using that type of debt?
2:12Ashley Kehr:Tony, I just got back from vacation. And here you are hitting me with some trauma that I had with hard money. here I am feeling all relaxed from my vacation and now we have to go and dive into this our first episode back. I have used hard money. I used it one time. I actually got a line of credit from a hard money lender. So with this line of credit, you paid points based on how much you were going to get for the line of credit. And then you would, and it wouldn't work as easily as like a HELOC does where basically you just pull money off the line of credit whenever you want and use it for whatever.
2:50Ashley Kehr:With this, you actually had to have every property approved before they would actually fund you off the line of credit. So basically it was just, you were already approved for X amount of money. I think mine was maybe half a million, 1 million. I can't remember for sure. It was probably four or five years ago. But so I could buy, use that within an allotted amount for the purchase price and for the rehab of the property. So I had three properties that I was going to use on this. I ended up only using it for two of them because those were such awful experiences. I ended up using my own cash for the third property because I just did not want to have to deal with it.
3:32Ashley Kehr:So a lot of lessons learned with hard money is to, I didn't ask enough questions up front. I didn't understand all of the fees that came along with it. And I didn't understand the funding process. So I didn't clearly understand what needed to be done to actually get funded on a property, what information they needed from me and how that all worked. So if you are looking into hard money, I think really understand what their process is, what their fees are, but also working with a hard money lender where you have one point of contact through every step, this would change hands and there would be a different point of contact.
4:11Ashley Kehr:I never had just one customer service agent or one lender that I could always go to and ask questions for and talk to. It was always passed off. And there was so much miscommunication throughout the whole process that we ended up, it was a Friday, we were supposed to close on one of the loans and we didn't even close because the person that was working on finalizing the loan didn't understand title in New York and literally like said like this is different than anything I've ever done and we had to delay closing till the next week until the hard money lender actually hired a title attorney to come in and basically reiterate what my attorney was saying was correct and then we could finally close so asking vetting um that was my awful traumatic experience with hard money but there are tons of people who know better than me to ask the right questions or to use a different company and they have had great success with it.
5:06Tony Robinson:Yeah. So I think those are some important things to call out, Ash. And we'll talk a little bit more about some other risks associated with hard money. But now that rookies know what it is, I think for a lot of people listening, hard money might feel like a tool that's really only for like the pro real estate investors. So let's just break down. When does it actually make sense for someone on their own to use hard money for maybe their first deal. So there's a few things that come to mind for me. So the first is that the property just simply won't appraise. And that's what I was talking about before, where it's maybe too distressed, right?
5:41Tony Robinson:There's a little bit too much work that needs to be done. Sometimes if properties are too inexpensive, you know, sometimes banks won't lend on a property that's super cheap. Or if the purchase price relative to the amount of rehab, right? If you're buying a property for $20 ,000, but it needs$80 ,000 in renovations, a lot of banks won't touch those kinds of products as well. So when the property won't appraise or when there's not enough margin on the deal, speed is another big one, right? Where hard money is incredibly useful. A traditional closing experience is 30 days. If you're in New York, it could be longer than that, could be two years.
6:14Tony Robinson:But if you want speed in closing, a lot of times hard money can be one of those levers you can pull because maybe a hard money lender can close in seven days, right? And that gives you the ability to have a stronger offer on a deal. And banks are just typically a lot slower. Another scenario where hard money helps is that maybe you have the deal, but you don't have the credit history or maybe like the W-2 income to get approved for a conventional loan. Like maybe your debt to income ratio isn't healthy enough. You've got your own primary residence and student loan debt and whatever it may be, but you've got a really, really great deal.
6:49Tony Robinson:Well, the hard money lenders are to an extent going to look at your credit profile, but a lot of what they're underwriting is the is the deal itself. And as long as you don't have like a bunch of, you know, foreclosures or like bankruptcies or, you know, like a 400 credit score. A lot, I think a lot of hard money lenders, I don't know what you've seen, but they're like, you've got to have like, I don't know, like a six something credit score. I think I've seen from a lot of hard money lenders. But you have more flexibility when it comes to getting approved on the credit side. And then the biggest, I think most common usage for hard money loans is if you're flipping or burning, right?
7:23Tony Robinson:So if You plan to bury a property or flip it. You buy with hard money. You use those funds to renovate it. And you're selling or refinancing on the back end. So even if you're a rookie investor, those use cases all still make a ton of sense to try and leverage hard money to get that deal done.
7:39Ashley Kehr:I think, too, really looking at your deal as to if the deal is a good fit for hard money, too. We've seen properties where, or even just investors, where they have a property and And they actually can take it to a small local bank where, and Tony did this for his first deal, where they will actually lend to you 100 % of the purchase price, 100 % of the rehab. And right now, you can still find those at some banks or close to that. Maybe it's not 100%, but 90 % just because you're buying a property so under market value that it's already appraising for the amount of money that you need to actually do this.
8:21Ashley Kehr:So they're willing to lend you more on it than just what you're purchasing it for. So I think not only looking at what options you have personally, but looking at the property too. And maybe, you know, even though you are doing a burr or you are doing a flip as to don't think hard money is your only option. Like if you are getting a really, really good deal, make sure you're looking at some of the other conventional ways I'll say as to like using a bank too. And then some deals are just going to be the best for a hard money lender on that property where maybe it's a unique property where you couldn't even get bank financing on it for X amount of reason.
9:01Ashley Kehr:And that's where going with a hard money lender would be better.
9:04Tony Robinson:And let's talk about a previous guest, Elizabeth Esplin. She was on the show last year and she found a deal that was a phenomenal deal. She ended up profiting over$200 ,000 on this deal. But the challenge was that no one wanted to lend on this deal because it was super cheap. It needed heavy rehab. And she had never done this before. But in her own words, she told us, she said, no one wanted to lend to me because the price was so low. And her ARV was so high that people thought that she was stupid or didn't know her numbers. Those are her exact words. And it was her first deal, right? So there were all these things working against her.
9:37Tony Robinson:So she just Googled hard money lenders in her area, and she ended up finding a bank that financed 100 % of the purchase price plus the rehab. Now, she still has some costs associated with it. But again, she ended up walking away with$200 ,000 from this deal because she found the right hard money lender to work with. So it is an option. It is a possibility.
9:58Ashley Kehr:Tony, what's another word to Google besides hard money lender? Because typically you don't see like a sign that says like, you know, Robinson hard money lending. Like what are some other indicators to know that this type of lender isn't just like a broker that pushes you out to different, you know, mortgage companies, but is actually a true hard money lender?
10:22Tony Robinson:That's a good question. I mean, like, I guess if I were starting from scratch, I would maybe search like real estate funding. um um i might search like real estate construction lender um things that things of that sort right
10:36Ashley Kehr:like you know burr lender it's like most of hard money lenders know what a burr is yeah fix and
10:43Tony Robinson:flip lender you know that's probably one of the best terms yeah fix and flip lender um because sometimes even if you google like construction loans you'll get a lot of like small local credit unions that are just like lending money to people to buy their own primary residence which is a different loan product, but like fix and flip lender might be a good one as well. And honestly, like guys, if you just like search the BiggerPockets forms, you'll see so many different people talking about lenders that they've used and, you know, big and small ones, national, local, regional, all those things. So there's a lot of different places to go aside from Google.
11:12Ashley Kehr:The lender finder too, biggerpockets.com slash lender finder too.
11:16Tony Robinson:So Ash, you talked a little bit already about some of the challenges that come along with hard money because it's not free money, right? It's not necessarily easy. There are real risks that rookies should think about before they sign up. So you talked about a few already, but I guess maybe just a couple others to highlight are that rates are oftentimes higher than what conventional loans will be. So you've got to make sure that you're understanding the interest rate structure as you get into these deals. I know a big one that kind of catches people off guard is that even if they go to a hard money lender and the lender says, hey, we'll fund 80 % of your costs on this project.
11:54Tony Robinson:And you're like, okay, cool. I only need to come with 20 % of the cost as like a down payment. But what they don't tell you is that you still have to front the initial cost for the construction. And so you've got to have not only that initial 20%, but enough to front whatever costs are accrued until they reimburse you on the backend, right? So a lot of sometimes hard money lenders aren't going to give you the money upfront. They're going to have you, the work needs to be performed. The vendors need to get paid and then you show them proof and they reimburse you, right? So having some, I think some additional slush money or some working capital is important as well.
12:27Tony Robinson:And that's one that folks sometimes overlook. And then for rookie investors, like one of the most common, I won't say traps, but like one of the most common situations they find themselves in is that their first rehab goes over budget and takes much longer than they anticipated, right? Like much longer and more money. And if you don't account for those things correctly when you're using hard money, it can get very expensive. A lot of times hard money lenders will charge you additional fees if you go beyond your initial term. And now that changes the underwriting on your deal. If you go from a 10 % and now they want to charge an additional fee of one to 2 % of your loan or maybe your interest rate increases or whatever it may be.
13:11Tony Robinson:I think just making sure that you're giving yourself enough time when that first deal and however much time you think you need however much budget you think you need. Increase both of those to give yourself some breathing room.
13:21Ashley Kehr:One thing you also notice too, is that you may need to do a personal guarantee, which a lot of times if you're going to a bank, you're having to do this anyways, even if your property is owned in an LLC, is you're going to have to also sign personally. You'll have to sign on behalf of the LLC and you'll have to sign personally. There are commercial loans that you can get where you give no personal guarantee. and those tend to be more expensive as in your interest rate is usually higher because now the bank has more risk because not only can they, you know, they can't go after you personally for some of your personal assets if you don't sign the personal guarantee.
14:06Ashley Kehr:So make sure that's clear up front and if that's something you want to do, if you're willing to take that risk. After the break, what if even a hard money lender won't touch your deal because that happens too. Small loans, cheap properties, weird asset types. There's a path that doesn't involve any traditional lender at all. And one of our recent guests used it to buy property number one with terms she negotiated directly with the seller. We'll be right back.
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16:46Ashley Kehr:Okay, we just walked through how to bring in a third-party lender when traditional banks won't work. Now, let's talk about a path that doesn't require any traditional lender at all. This is called seller financing. And most rookies have heard the term but couldn't tell you exactly how it works. So in plain English, let's talk about what seller financing is. So basically, this is when the seller of the property becomes the bank. And I'll say outright disclaimer that this cannot happen with every single property. And you'll understand why when we go through. But not every property can have seller financing on it.
17:23Ashley Kehr:So seller financing is you are purchasing a property. So we're going to use me and Tony as an example. Tony has a property. He is selling. And I want to purchase it. Normally, you would think you would go to the bank or you'd go to a hard money lender we just learned about, and you'd get the money from them. You'd take that money, and I'd give it to Tony. And then I would make payments to the bank. Tony has his lump of money, and he's off buying his cottage in Italy. But with seller financing, you don't have the bank as a part of it. There's no bank involved in most cases. okay what you're doing is tony owns this house free and clear so instead of him getting a lump sum of money from me say i'm purchasing it for a hundred thousand dollars we're gonna do seller financing where i'm gonna make monthly payments to him he doesn't get a lump sum unless i'm putting down a down payment he'll get that and i am just going to pay him and he is going to collect that money.
18:23Ashley Kehr:Typically, there is an interest rate involved. So he's making interest on that money. And it is technically, instead of me using a bank to pay him, I am just paying him directly in monthly installments. And you may be thinking, why would somebody even want to do that? Which we will talk about later as to the benefits of this. But that's seller financing, where the person holds the mortgage, they become the bank, and you just make payments directly to them. Some of them have balloon options where maybe you're only making payments for four years and then you owe them the balance of it. The nice thing about seller financing is you can set this up however you want it to.
19:04Ashley Kehr:The terms can be negotiated however you and the seller want to figure them out. You're not tied to the constraints of a bank.
19:12Tony Robinson:Yeah, I think that's one of the biggest benefits of seller financing is that there is a lot of flexibility. but I think the question that rookies might be thinking is like, well, where are all these sellers offering seller financing? Right. Cause like, as I'm scrolling through Zillow and Redfin, I'm not seeing these and it's true. Some, you know, in some instances you will see like in the listing where the seller will, will just flat out say like, Hey, they'll, they'll entertain seller financing. But a lot of times they're, they're not just promoting that, but that doesn't mean that there aren't sellers who, who, who wouldn't be open to it.
Read the full transcript
19:43Tony Robinson:So what is the profile of someone who actually would entertain seller financing. First is someone who maybe doesn't need or want the entire lump sum all at once. And there are different reasons that folks might want that. It could be because they don't want the tax implications. It could be because they just want that money stretched out over a few months or a few years if it actually ends up being more capital. But there are some folks who don't want the big capital event to happen all at one time. Sometimes it's because maybe the properties won't appraise, right? Like if I agree to sell Ashley a property, and let's say that I want a million dollars for it, but the property is only worth 800, right?
20:25Tony Robinson:But Ashley knows that, hey, if she gets it under contract at a million with the right terms, the cash flow is going to be significant, and it's a great return for her. Well, maybe she's willing to accept some of this negative equity, if I can give her the right terms that she's looking for. And I'm happy to give her seller financing, if it means I can get the purchase price that I want and actually extract more value out of this deal. So we're, we're both kind of giving some, you know, giving a little bit on both ends, right. But I've seen it happen in that way where it's because the property won't appraise.
20:55Sometimes it could be like, again, like, like tax related, right?
20:59Tony Robinson:Like if I bought a property 30 years ago and I go to sell it today, that that could be a pretty big taxable event for me. But if I spread those payments out now over the next 10 or 15 years, when I'm only paying tax to the most small payments as opposed to this one big lump sum. And that's a little bit easier for me to execute from a tax mitigation perspective. So a lot of times, guys, when it comes to getting sellers to be open to seller financing, it's really just a question of like, hey, would you be open to hearing more about how we can put some terms together for this deal to give you what it is you're looking for.
21:34Tony Robinson:And the better we understand the seller's motivations, I think the easier it is to put together a package of seller financing that speaks to those motivations.
21:42Ashley Kehr:So one recent episode we did was with Kimber and she broke down seller financing better than most people we've actually had on the show. So her exact deal, we're going to go through it real quick, the down payment, the terms, the balloon. So a rookie can see what actually, what, so a
22:03Ashley Kehr:So she actually did a smaller down payment than a conventional loan require. For investment properties, a lot of times this can be up to 25 % down, sometimes 20%, but usually not less than that, especially for an investment property. Her structure was a five-year balloon. So that means within five years, she needs to either save up the cash to pay off the balance. she needs to go and refinance with a bank to pay the seller of the property off or she actually needs to sell the property to get the funds to pay off that loan to the seller and I do remember this was one of the things she had said was it's super beneficial because the terms are a little bit more negotiable that's exactly what Tony had said too is there's so much flexibility in how you build this out to make it work for you.
22:56Ashley Kehr:So I have a property right now where I did seller financing and they, it's seller financing for four years. And within that four year period, I have my timeframe of renovating the property so that when, you know, it gets to be year three, I'm going to start talking to banks and getting it lined up to do my refinance, get my appraisal and make sure that is, you know, worth a lot more money than what I bought it for. So I can pay off my seller financing. Yeah.
23:23Tony Robinson:And you touched on, Ashley, I think like the flexibility of seller financing. And to your point, there are a few different levers that we can pull when we put together a seller finance proposal to a seller versus down payment, right? So what percentage of the purchase price are we offering up to the seller at the beginning? And believe it or not, I mean, I've definitely met folks who have gotten seller finance deals with zero down. The sellers didn't want any initial cash up front, or at least the buyers were able to negotiate no initial cash up front but down payment is one lever that you can pull um the actual interest rate itself right like how much are you paying in interest to the seller and this is one of those things guys where it's like you can slide the interest rate up or down and you can also slide the uh the purchase price up or down so like if you know say that say that maybe a uh a seller's like really fixated on getting a certain interest rate back okay hey i'll give you this interest rate but then we're gonna we're going to pull down the purchase price to X, right?
24:21Tony Robinson:And now it gives me a little bit more flexibility as the buyer. But the interest rate is one lever that you can pull. To Ashley's point, the balloon period, like when do you need to sell or refinance this property? We have a seller finance note on our hotel and it was a seven-year term. So we have seven years to stabilize the property and then we can either sell or refinance that property to pay off the note. And then the amortization schedules, how long are we stretching those payments out? So like if we were to pay it often full, how much time will we need? And, you know, we have a 30-year amortization on our note, again, with that seven-year balloon payment.
24:55Tony Robinson:So like all of those are all different levers that you can pull as you're thinking about your seller finance note. And again, depending on what's important to the seller, you can prioritize certain ones of those to really give the seller what it is that they're asking for, while hopefully adjusting the other so it aligns more closely to a deal that makes sense for you.
25:12Ashley Kehr:Now, there are some risks to doing seller financing, like any financing. And so one thing to definitely look at is to figure out everything clearly beforehand. You know, with a bank, it's pretty standard how you make your payment, how, you know, they send you a statement every month to show you what your balance is, things like that. So in any seller financing I do, I'm putting it clearly in writing as many things as possible, including how my payment will be made and usually I do is like um ACH so they so I know up front they will accept ACH payments and that's how they will expect to receive it and there's no other expectation of how they will receive my payment every month um then at the end of the year we are uh they are sending me a balance as to at the year end how much interest did I pay what my my balances on my loan.
26:12Ashley Kehr:And I do that because I don't want to make, I want to know if there's some discrepancy so we can take care of it until it's been four or five years into this loan. And you know, all of a sudden there's a balloon payment and they say, well, no, you, you know, that's not what I have. And you know, it doesn't match up. So think about a lot of those things that you don't have the security blanket of it being a well-oiled machine as a bank and not that a bank is i just had a insurance payment that wasn't made by my bank that has escrow so the banks can still definitely make mistakes but i would just make sure every the process of how you are going to have that relationship is laid out very clearly all right coming up what if you
26:57Tony Robinson:don't have the capital and you can't find a deal that fits the first two paths the third option is one most rookies miss completely and it's the path that lets you build wealth with people who already have what you don't. And we'll get right into it after this quick break. Wouldn't it be great if your houseplants paid rent while you were out of town? I mean, they've got the whole place to themselves, lots of sunlight, zero responsibilities. But no, they just sit there waiting for someone to spray them with some cool mist like a bunch of leafy loafers. But guess what? Your home actually could be earning you money while you're not there.
27:26Tony Robinson:Airbnb has a great feature called the co-host network, which makes hosting your home so easy. If you live far from your property or are away for extended periods, you can hire a local co-host to take care of the hosting for you. These co-hosts are vetted locals who already have experience hosting on Airbnb. A co-host can handle all the details like messaging guests, creating your host space, and managing reservations so everything runs smoothly. It's a practical way to earn a little extra money, maybe even some cash toward your next trip. Plus, you get to share your place with someone traveling to your area while you're off making memories somewhere else.
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31:11Tony Robinson:All right, so we've covered how to find money outside of yourself, hard money lenders, seller financing. Now let's talk about how to find people outside of yourself, because a lot of rookies, the missing piece isn't the loan, it's simply a capital partner. So the third and final path is simply leveraging partnerships. Now, if you don't know, Ashley and I actually co-authored a book called Real Estate Partnerships, where we both documented and taught on our own experiences on leveraging partnerships to build our portfolios. And both of us, you know, give the power of partnerships a lot of credit and the ability that we have to build our portfolio.
31:48Tony Robinson:So let's start here, right? I mean, there is a reason that partnerships are talked about so much in real estate. But look, they're not always the right move. So I think the first thing is, let's discuss when a partnership genuinely is the best path for Ricky and maybe when it's the wrong call. So it's the right move. If you have the deal, and you have the time, but you don't have the capital. Because that means that you can take you've done all the hard work of finding the deal, you've got the time to manage that deal, whether it's a burr or flip a midterm or long term, whatever it may be, you've got the time to manage that deal, but you simply don't have the capital to take it down.
32:25Tony Robinson:Now you're just approaching someone and saying, look at this amazing deal I have. I'm looking to partner with someone to take it down. Are you in or are you out? That's a very clear benefit-driven value prop. It's the right move if the deal is bigger than maybe you take on solo. Say it's maybe like a 12 unit and the biggest you've done is like a two family. And you want to partner with someone who's also done maybe like a four family and together like, okay, between your four and my duplex, we feel like maybe we can manage this whole thing together. So if you're partnering to take on deals that are bigger, it's the right move if you want to learn from someone with more experience and equity for mentorship actually makes sense, right?
33:07Tony Robinson:Like Ashley, you talk about the liquor store or the kind of the first big renovation that you did where you partnered with folks to bring in their expertise in exchange to got some equity. So I think those are the times when it's the right move to partner. Ashley, what about the wrong time when you feel like it might be the wrong time to partner with someone? Yeah.
33:24Ashley Kehr:So that can be because you're just scared. And I'll be completely honest. That was one of the reasons I wanted a partner was, first of all, I didn't have the capital. So there was a right reason there. But also I was scared. And I thought that I needed to have a partner to be able to do a deal. and if you have all the other key missing things you you know you have some time you have capital or access to capital um you've done your research you have somewhat of a knowledge base or experience then you probably don't need a partner um and if you have that and you're only acting on fear of getting a partner then that probably isn't the right move for you um if you are relying on a partner to do, if you are relying on a partner to do a lot of the work to, you know, handle everything and you just want to be passive and you don't want to do anything, then maybe going and buying a rental property and burying it or whatever isn't the right move.
34:27Ashley Kehr:So I think before you even decide if you need a partner, you really need to figure out what your why is, what strategy you actually want to do. Don't just get into a partnership because you want a good deal. Like make sure it's actually a strategy, an asset class, a workload, whatever it may be that you actually want to take on and you want to do. So there's so much work you have to do for yourself as to really understanding what kind of partnership would be, you know, clear. So the wrong move is jumping into a partnership only because you think this person would be a great partner or because you think this deal would make a great deal.
35:07Ashley Kehr:Those things on their own can't stand alone. You have to figure out what's going to work best for you before you jump into anything. So that could definitely be a wrong move there.
35:20Tony Robinson:Let's talk about some of our previous rookie guests and how they've leveraged partnerships. So we had Anthony on the show a while back, and he has a portfolio of nine units across seven different properties. And he's structured them in two different ways, which is what kind of makes it so useful here. So five of the nine units are owned solo by him and his wife. And then four of the nine units are owned in partnership with his brother-in-law. So the key insight here is that he didn't make every deal of partnership. He picked which ones based on the capital required to actually take those deals down.
35:51Tony Robinson:And he actually didn't partner with family again, it was his brother-in-law, which I think was an easier path to find that partner, but he still structured it like you would any other partnership to make sure that they both had clarity on what that partnership looked like. But I highlight Anthony's story to say that you can mix and match. You don't have to do a partnership on every deal. If you do have the means to take it down by yourself, then do that. But if you find that actually bringing someone to mix more sense, you can have a mix of both in your portfolio.
36:15Ashley Kehr:Now, we also have Dylan's story as an example. He had one property already, a triplex that he had house hacked, but he wanted to make a much bigger jump and go into a 12 unit. So with this, he actually found the 12 unit. He knew the math worked. He ran the numbers on the deal, but he didn't have the capital. So he actually went to a coworker who he knew had been buying real estate for some time. And so he showed him the financials, showed him the deal and just asked, is this something you want to be part of? And the coworker said, yes. And that's how their partnership formed. So they structured that partnership for that specific deal.
36:57Ashley Kehr:So this wasn't a forever lasting relationship that every deal we ever buy or find, we have to partner together. And this is how the partnership has to work. It was a very deal specific. It wasn't a let's partner forever arrangement.
37:12Tony Robinson:Now, this is the part that probably scares rookies the most, but it's how do you actually split equity when one person brings a deal and the other person brings money. So we just want to walk through like what is actually fair and what kills these partnerships before they even close on the first deal. So I think the first big thing I want to call out is that there's this big misconception amongst rookie investors that if they don't have the capital, that they are somehow the inferior partner in that relationship. When in reality, you guys are very much on equal footing. And honestly, if we talk about value, maybe you might even be more important because you're the one who sourced the deal.
37:48Tony Robinson:You're the one who stayed up late at night, swinging hammers at the property. Or maybe you're the one that's screening tenants and dealing with the contractors to get the units tenant ready. Maybe you're the person managing the guests. If it's short term rental, you're babysitting the contractors. If you're flipping, there's so much work that goes into finding the deal and managing that deal. whereas the person who brought the capital, typically the extent of their work is maybe signing some loan docs and then wiring in some funds on the day of closing. And then they get to drop all of the other thoughts and pressures from this deal away from their mind.
38:23Tony Robinson:So when you frame it up that way, you bring an incredible amount of value. The deal would not exist without the work that you did. And for all intents and purposes, a person bringing the capital is replaceable because there are a lot of people out there who have the capital, but you are the only person that has this deal. So you've got to just rewire the importance you have stepping into that. But I personally think that like the easiest, you know, most straightforward way to structure it is just make it 50-50. If you guys go on a deal and for that very first one, say, hey, you're going to bring the capital.
38:54Tony Robinson:I'm going to do the work and let's just split it down the middle. We've used a lot of different partnership structures as we built our portfolio. But for me, for a Ricky investor looking to get started, I feel like 50-50 makes the most sense. What do you think, Ash? Is Is there a different model you think makes more sense for rookie investors?
39:10Ashley Kehr:No, I just think like the biggest piece of advice I can get from my own experience is, especially for your first deal, don't get caught up on what's fair. My first deal was not fair. I did way more work. I got way less benefit. But it got to me started. So I would say that like don't not do a partnership because you don't think it's 100 % fair that like you're getting, you know, the best deal that you can. You're getting the best, you know, return that you can. Some return is better than no return. And that experience and that knowledge that you're going to learn from doing your first deal is going to carry a lot of weight in gold.
39:53So if the only way you can do a deal is because you're giving maybe that person a little more equity or they're, you know, maybe getting like my partner got paid back his capital he invested plus interest.
40:06Ashley Kehr:So, you know, maybe they are getting a better part of the deal and that may be OK. Don't let that happen forever. Like start to know your worth. Like I never do that deal anymore with anyone. But I would just say, don't get too caught up on the terms of that first partnership that it ends up, the deal ends up going away because you can't make it work in time or anything like that too. Well, you guys, thank you so much for listening to this episode of Real Estate Rookie. I'm Ashley, he's Tony, and we'll see you guys on the next episode.
40:43Tony Robinson:Hey, rookies, if you're watching this, we want you to apply to be a guest on the Real Estate Rookie podcast. That's right. Ashley and I are looking for amazing stories just like yours to be a part of our Real Estate Rookie Podcast. Now look, you don't need to be an expert. You don't need to have done thousands of deals. Even if you've done one deal, your story could help inspire the next listener.
41:01Ashley Kehr:As a rookie investor, especially if you just got your first deal, it is all fresh in your minds, and you are the best person to tell your story, give your experience on how you got it done to help someone else get their first deal.
41:14Tony Robinson:So head over to biggerpockets.com slash guest if you want to be a part of our show. Again, that's biggerpockets.com slash guest. And we'd love to have you on.
From the publisher
What’s stopping you from buying your very first rental property? For most rookies, it’s rarely ever the market, the interest rates, or even the competition–it's a number in their head. Today, we’re breaking down that barrier with real rookie use cases that will inspire you to take that next step in your real estate investing journey!
Welcome back to the Real Estate Rookie podcast! In this episode, we’re sharing three ways to fund real estate deals that have actually worked for past Rookie guests. None of these creative financing options require 20% down, none of them require a traditional bank, and one of them doesn't involve a lender at all! We dive into how hard money loans work and when they make sense, how to find a seller who'll say yes to seller financing, and the levers you can pull to structure your deal. Ashley also shares her hard money horror story so you don't have to learn those lessons the expensive way!
If you've been sitting on the sidelines because you don't think you have enough money to invest, this conversation will give you the knowledge and confidence to get started today!
In This Episode We Cover
Hard money—what it is, how lenders make money, and when it actually makes sense for a rookie
Ashley's hard money horror story and the exact questions you need to ask
How to structure a seller financing deal as a complete beginner
Real seller financing case studies (from past Rookie guests!)
The right (and wrong) reasons to bring in an equity partner on your real estate deal
And So Much More!
Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/rookie-738.
Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email advertise@biggerpockets.com.
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