5 Ways to Buy Rentals Without a Huge Bank Account

0:00Most rookies think you need a mountain of cash to buy your first property, but in reality, the financing strategy you choose matters more than the size of your bank account. And today, we'll break down five rookie-friendly ways to fund your first real estate deal in 2025. From low-money-down FHA loans to creative financing methods that let you bypass the banks altogether, we'll help you get your hands on the money you need to get these deals closed.

0:29This is the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. And with that, let's jump into financing path number one, which is FHA and conventional loans. I think a lot of rookies make the mistake of hearing those loan products and assuming that those can't be used at all for properties that actually generate revenue as rentals. And while it's true for an FHA that you have to live in it, it doesn't necessarily mean that property can't also generate revenue. And we'll talk about some of the strategies there, but conventional loans, those can be for traditional primary residences, or you can use a conventional loan for an investment property.

1:07So there is, I think, some flexibility around these loans. Going back to the FHA example, and maybe let's just actually break both of these down before we even get into the examples. When we talk FHA, Ashton, you always make the joke, what did you think FHA stood for when you first heard it? Yeah, I honestly thought it was like it was only like first time homebuyer. Like it had to be your first time ever buying a house to get this loan. And I thought that for a very, very long time whenever I heard FHA. Yeah. And in reality, it's not necessarily for first time homebuyers. In fact, it's not you don't have to be a first time homebuyer to use this.

1:44But it's just a federally backed loan that gives you typically a lower interest rate. Three and a half percent is the most common. but there are a lot of, so the FHA loan, one of the benefits is that it comes with a lower down payment. Typically three and a half percent is what most people are quoted or why they opt to go the FHA route. But it also comes with a lot of hoops you have to jump through. And as a buyer, that might not seem like that big of a deal. It's like, Hey, I've got this FHA loan, but on the seller's perspective, if someone's bringing an FHA loan compared to a conventional loan, sometimes they might opt for the conventional because it comes with less hoops.

2:20There are FHA inspections that need to be done. And if the seller's not willing to make those repairs or to bring it up to quote unquote code for the FHA, it can cause some concerns. Conventional loans are a little bit more flexible in terms of what you can buy, right? You can buy properties, maybe wouldn't qualify for FHA financing. So when you think about conventional loans, These are the loans that still have some sort of government backing. So like if you've heard of the terms Fannie and Freddie, those are the kind of quasi-government agencies that are backing these conventional loans. And what happens is that a lot of these banks or lenders, they'll be the person processing your loans.

3:00You'll go into whatever Ashley Carey's loan office. She'll fill out all the documentation for you. But Ashley's not keeping that loan on her book. She's actually packaging that loan up. and she's giving it to Fannie and Freddie who are then going to service that loan for you. That's what we mean when we say conventional loan. There's some sort of government backing behind that. We'll talk later about some of the other loan options, but just know in general that's what we're talking about. And that's why those loans, I think, are so common because who doesn't want debt that's backed by the government, right?

3:31Like everyone's going to jump at that opportunity. But that's also why these loans, I think, have more limitations than some of these nonconventional options because they are tied to the government. And, you know, they want to make sure that they're underwriting things in the right way. I think, too, when you are like shopping for loans and, you know, don't automatically assume FHA is like the best route to go because there are some conventional loans where you only need 5 % down if it is going to be your primary residence. So make sure you ask a lender, you know, what options they have instead of just narrowing yourself down saying you want an FHA loan, too.

4:05When we bought our first primary, we had options of FHA or conventional, and we went conventional. And I want to say it was maybe it was 5 % down. But then because we went conventional and we bought this new construction from a large developer, they also gave us a credit, which reduced our down payment by pretty much the same as it would have been if it was a 3.5 % down. So the conventional has some pluses and minuses there too. I think the one thing I want to call out, though, is that even though the FHA very clearly has the restriction that it has to be your primary residence, if you are doing something like a house hack, where either you're renting by the room in a large single-family home or if you're buying small multifamily, you can rent out that extra space and still earn income.

4:50And there's nothing that would prevent you from doing that simply because it's FHA. And we've interviewed lots of folks on the podcast who buy homes, move into one unit, and rent out the other units using FHA. And it's a great low down payment way to get into these deals. And if you do that, you've got to live in it for typically, what is it, 12 months before you can go on to the next one. But say you're doing that every 12 to 18 months. Well, now you've built a pretty big portfolio with relatively small down payments. So it is a good way for Ricky to get in, even if you don't have a ton of savings built up.

5:23Yeah, we just had Matt Kruger on the show that he literally did this with live in a property for one year and then move on to the next, live in it for a year, add some value, and then he would run some all out. And he's built his portfolio that way. So, yeah, I think that is a great option. The thing with FHA is you can only have one of the FHA loans in your name at a time. So that's why the conventional loan is better because you don't have to refinance. you also don't have to deal with the FHA inspection of the property, especially if you are buying a property to add value. It may not pass FHA inspection.

6:02I remember my cousin bought a property and it failed FHA inspection because they didn't have a handrail or something going up the stairs or whatever. And the seller refused to put a handrail up to make it pass inspection. They were literally going to let this deal fall through. And I remember my uncle went over to the house and like got permission from the owner to go ahead and put this railing up before they even owned it just so it would have passed inspection so they could purchase the property. So I don't know exactly what the list of rules are, but you could just go to the FHA website and see what those things are and make sure your buy box isn't a completely dilapidated property.

6:42And four, if it's going to be your primary residence, it has to be livable. Like you have to be able to move into the property within a certain amount of time after closing. So that's financing path number one, FHA and conventional. Financing path number two, partnerships. And Ash and I wrote the book on partnerships for BiggerPockets. You guys can check that out at biggerpockets.com slash partnerships. But partnerships, I think, are one of the tools that if more rookies were comfortable using, would allow them to get in, get their feet wet, and start learning the game. We just interviewed Sebastian Rodriguez, and this is a person who immigrated to America speaking none of the language, no friends, no family, literally no one, and was able to leverage partnerships to go from zero to 13 doors and roughly$4 ,000 a month in cash flow in like six years.

7:32And he did that on the back of partnerships. So there's definitely a ton of value for Rickies to learn this skill because it allows you to use the things you do have at your disposal, time, your ability to acquire knowledge, and pair that with someone who has what you're missing, which is the capital, or the ability to get approved for the loans. So Rickies, I think at some point, even if you have capital to start, at some point you're going to run out. So I think being able to leverage partnerships is a good tool in your tool build as you scale your portfolio. And if you want to learn more about partnerships, Tony and I co-authored a great book called The Real Estate Partnerships.

8:09You can go to biggerpockets.com slash partnerships. You can even use the code. I think it's Tony10 or Ashley10 for 10 % off. But this is actually how I started. I had no money. And I found a partner to finance my first deal. So he brought all the capital to the table and I was just going to be the one that found the deal, managed the rehab, managed the tenants, got tenants in place and acted as the leasing agent, the property manager and did the bookkeeping, all of those things for the property. And we eventually went and refinanced and paid him back. But that and I handled all of that, too. So it was pretty passive.

8:54He did contribute by having his roommate do all of our work for us. But we were 50-50 partners on the property. We both went to the property to look it over and things like that. But we set it up so that I would be doing most of the work and he would be the money partner. One thing is that you have to be careful about that. Because if you can get into SEC rules and regulations where if you are getting too many passive partners, you're going to start to fall under. You need to do syndications. You need to be regulated by the SEC and follow all of these rules and things like that. So when you bring on partners, make sure that they are contributing or have some type of role into actually running the investment.

9:41So it's an active investment for them too. Um, but I, I wouldn't have, I probably would have been so much longer until I would have got it started if I didn't have a partner with money. I mean, it would have taken me a long time to save up that amount of money. Um, at the time, I think I was like making$35 ,000 a year and this was a$72 ,000 property. So I would have had to save my money for over two years and never spend a dollar of it. If you're someone who's new and you're thinking, yeah, Tony, Ashley, this sounds great to God and find these people who have all these money, but where are all these people hiding?

10:22Here's a few things I'm going to encourage you to do. First, and I'll give you both things to do digitally because I think you'd be silly not to leverage that, but I'm also going to give you things to do in person. Digitally, one of the first things that I would do is go find a community online. line, go join the Real Estate Rookie Facebook group. Tens of thousands of people in that group. And even if you don't have a ton of knowledge today, just simply being active and present, and you'll start to see some of the same names popping up and you'll start having conversations. And this isn't going to happen overnight, but if you consistently participate over time, and when I say time, I mean months and months and months of doing this, you'll start to naturally build relationships within that group, right?

11:09So that is a free resource. There's a high percentage that you already have a Facebook group. Go there. The BiggerPockets forums, another place, completely free to join, participate, ask questions, provide value where you can. If you just focus on doing those two things consistently, like, hey, I'm going to jump in there every day for 30 minutes, and I'm just going to see what I can add, see what value I can add, you'll eventually start to build relationships online. In person, physically, I would go to your local meetup and I would just attend consistently. I would find the person who's hosting the meetup and say, is there any way that I can provide value to you as you host this meetup?

11:50It could be logistics like, hey, let me stand at the front door and get everyone to sign in when they get here. It's, hey, let me help you maybe source guests if you want speakers to come to your meetup. Let me get out there and help promote this on those Facebook groups and the BiggerPockets forums that I'm so active in, but go find a local meetup somewhere and participate. And the last thing I would do is try and find the place where people with money are hanging out. Right? I was listening to someone speak, and he said one of the most interesting things when it comes to raising capital. And he said that the people who want to raise capital in real estate are going to the wrong events because they're only going to real estate events where other real estate investors are hanging out.

12:33But if you want to raise capital, go to the events where the entrepreneurs are hanging out. Go to the events where the lawyers and the medical professionals are hanging out. Go to the events where people who generate lots of income but don't have lots of time are hanging out and build relationships in those circles. Because then if you can share, hey, here's what I'm doing, here's what I'm working on, that'll naturally pique their interest. So we've had guests who talked about joining country clubs. You know, we just had Sebastian I mentioned earlier who said he went to an expensive gym. And that's where he met a lot of his folks.

13:04So try and identify where those folks who have the income are hanging out and just go insert yourself and provide value. Genuinely build relationships. We had somebody on before, too, that talked about upgrading to first class, how you're sitting next to somebody in first class. I don't like to talk to anyone. I'm playing. So that wouldn't work for me. That would not work for me. Actually, there was one time. It was a shorter flight and I did talk to a guy in first class and he ended up being an insurance broker and we ended up talking the whole time and it was great and it was super interesting.

13:39And I went out to his office a couple of weeks later and stuff like that and learned about his insurance company and stuff. So I can attest that does work, But I have to say I'm more pretty much on my computer, you know, working or things, you know, the whole time. Lately, I've been reading books on airplanes, but talking to people, not my strong suit. So maybe I should practice. Maybe this will be my motivation to upgrade my next flight to first class. And I can only do it if I talk to the person next to me. But I think, too, before we get off the partnerships is that, you know, when you're going and meeting people and building these relationships is like not to have that your main goal is to be your money partner.

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18:35So Tony, what is the third financing strategy? So financing path number three is seller financing. There's a chance you have probably heard of this strategy, but seller financing is the concept where instead of going to the bank and having the bank give you the majority of the money that's needed to buy the home, the seller actually operates as the bank. So I'll give you guys an example. When we bought our hotel last year, we did not use traditional financing. We used seller financing. So the owners now have a note against the property. And instead of making monthly payments to Bank of America, we make monthly payments to the previous owners.

19:19And it was a win-win because they got consistent cashflow for the next, I think our notice seven years with them, or even 10 years. They've got consistent cashflow for the next decade, right? We got to get into this asset with terms that were more favorable for us than what we would have been able to get from a bank. and it was truly a win-win for everyone. So imagine being able to buy properties and scale your portfolio without ever having to go to a bank. And we didn't have to fill out the mountains and mountains of paperwork. There were no credit checks. There were no this, there were no that.

19:53There were no DTI conversations. It was just, hey, here's what we agree on. Let's make it happen. And I know lots of folks who have built their portfolio strictly on the back of seller financing. And we've interviewed lots of folks in the podcast, but I think it is a strategy that more folks should be looking at, especially right now because there are, and you're seeing these headlines more and more, but the baby boomer generation is getting to retirement age, many and many and many of them every single day. And as that happens, a lot of them are looking for ways to dispose of their assets that they've accumulated during their life because either they don't want to continue to manage it, they don't have any kids they want to pass it on to, the kids don't want to deal with it.

20:36And that's where we, as the next generation, can step in and provide a solution that still gives them that consistent monthly cash flow, but without the headache of actually dealing with the property on a day-to-day basis. And that's exactly how we got our hotel deal. Two kids had inherited this property from their dad who passed away. They were tired of managing it themselves. We just want to wash our hands of it, but we still want the cash flow. And that's how we set that seller finance deal in place. I actually just had an investor reach out to me and he got my business card two years ago from one of the customer service reps at the bank who helps you set up checking accounts.

21:16She was actually one that I loved and used all the time and she ended up getting a different job. But at some point, she had given my business card to another investor and said, if you ever sell, call her. And so he called, he left a voicemail. And so I gave him my email to send me more information. And in that email, he gave me the property addresses, the rents, the taxes, and that he would be open to doing seller financing, that he's really trying to take advantage of the tax strategies and what he can do to not pay so much tax on the sale of the properties. And so he actually offered seller financing to me.

22:02And he's looking to retire from being a landlord. And he wants to sell a couple each year until they're all gone. And so he kind of had his own plan in place. And part of that plan was doing seller financing. And I thought about this. And this is something that when I'm ready to sell it all, if that ever happens, is I would be very strategic like this, that I would also think about how can I get the max benefit of this instead of just selling it all, getting the cash and giving a ton of that cash away to taxes, how can I maximize that benefit? So there are savvy investors who have been doing this a long time, have learned the tax advantages, have been through it all as a landlord and maybe that are understanding of why seller financing works for them and works for you too as the buyer.

23:00I think a few things to consider as you're going through seller financing. First is that I think that seller financing might actually be easier on commercial properties than it is on single family residences. And this is just my own experience, right? I'm sure there other folks who might contest that. But the reason I say that is in commercial, A, you're typically dealing with folks who are more seasoned investors. So they already understand the concept of seller financing. And B, when we talk about buying commercial real estate, one of the things that's required typically for a bank to lend on that type of asset is good bookkeeping from the current owners.

23:43And if, you know, we're dealing with some of these mom and pop owners who, you know, Ashley talks about like the, you know, when you, you're working at that apartment complex and they just had like a sheet with a grid and everyone's name, they will put an X whenever someone paid their rent, banks aren't going to, they're not going to take that. Right. So oftentimes the best way for the seller to dispose of the asset and get the price that they actually want is through seller financing because it would be too difficult for a buyer to go out and get traditional financing. So I think that there is really a big opportunity on the commercial side, but even on the single family side, I think the opportunity is there.

24:21But what I want Rickies to think about when you consider or you are pitching the idea of seller financing to the seller, there's a few different levers that you can kind of manipulate to try and come to an agreement that makes sense. First is the price, the actual purchase price that you agree on. Next is the interest rate. What is the amount of return they're going to get on this money for lending it to you? The down payment would be next. You have the amortization period. So how long are we going to stretch out this purchase price? You have any balloon payments. So is it going to be due in 30 years?

25:03or are we going to have some balloon payment due in 10 years? Do you have an interest only period? So there's like five or six things that you can look at and kind of piece together to make the offer more attractive to the seller. And as you have conversations, I think you'll start to understand what's most important to the seller. Like for us, we knew that the sellers just wanted a certain dollar amount every single month. And once we had that insight, it became easier for us to put the deal together in a way that gave them the number that they wanted every month, but still gave us some of the other terms that would make the deal work for us, right?

25:40So getting that insight and then being able to craft these different things together is what makes it a true win-win for both you and for the seller. Then the fourth financing path we want to talk about is private money lending. So this is actually my dream and my goal is to sell all my properties and just be a private money lender. And if you don't pay, I'm coming with my baseball bat to break your kneecap. But the private money lending is going to somebody else who doesn't have the time to actually invest, but they have the capital and maybe they don't want to be involved in, you know, the actual property and be an active investor by being your equity partner.