Investing in Real Estate without the Large Downpayment

By
Real Estate Agent with Long Realty SA662761000

In our current financial market, it has become increasingly more difficult for the average real estate investor to purchase an investment property due to the large downpayment requirements, especially with multi-family property.

There are a couple of ways to get around the large downpayment requirements coming out of your pocket. The old philosophy of OPM, or using Other People's Money, still holds true, why not leverage yourself to do more? Just be certain that if you plan to leverage yourself and "borrow" the money, have a strategy in place to payback what you have borrowed, the easiest way is from the newly acquired property.

The most common way to leverage is to secure a line of crediton one of your existing properties, whether it's investment property or your home that you live in. You can "borrow" the downpayment from one home to put into another. Keep in mind, that your downpayment reduces the loan amount, so taking from one property to another is not money wasted, but essentially moving money from one home to another. It's a great way to acquire a new property with money sitting in your current home.

You can also "borrow" the money from some alternative sources such as your IRA. Using your IRA, you can use some of your retirement money to further your investing and once again, just pay yourself back over time. If you plan to invest long term, there is no better way to ensure a more healthier retirement than from a property paid off completely and the rental income generating from it directly in your pocket monthly.

There are other ways to get the money as well, you can look into your stocks, mutual fundsand even life insurance policies. You may want to speak with your financial advisor/planner to get the specifics, but once again, a great way to leverage yourself for long term wealth.

The last item to mention is very basic. You can sell an existing property to acquire a new one. For long term investing, not always the best strategy, but if the newer property is significantly superior, then may be worth entertaining. The draw back to this is if you sell an investment property for another investment property, you can get taxed Capital Gains of 15% on the net proceeds. That is of course, unless you utilize the 1031 Tax Free Exchange. Taking your proceeds from one property to the next without physically taking control of the funds will constitute the tax free exchange. For more details on 1031 Exchanges, visit my site at JoshSellsVirginia.com.

I hope this topic is helpful to many of the investors out there that are frustrated because of all the good deals to be had but not having the money needed to get into the game.

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Rainer
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real estate real estate
Providence, RI

Josh, this is one of few good articles on investment. I think it really should be featured.

Jan 27, 2009 01:10 AM #1
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Rainer
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