How to Get Around High Down Payment Requirements

David:
This is the BiggerPockets Podcast, show 624. One thing that makes people feel confident and comfortable choosing you as their realtor is when you also own real estate, especially if you own several properties. Now, you can sell someone who’s a little hesitant on buying a house with house hacking, but you can sell it even better if you do it yourself. You can help investors with buying homes, but if you own rental property yourself, you’re much more likely to do so.
When I’m looking to buy in different markets, the first thing I want is a realtor who owns these assets themselves and has connections in the space that I’m going to need. What’s going on, everyone? My name is David Greene and I’m your host of the BiggerPockets Real Estate Podcast. Here today with a Seeing Greene edition, as you can tell from the green light behind my head, if you are following us on YouTube. If you are not following us on YouTube, you probably didn’t just see the hand gestures that I made when I said show 624. And I would advise you to go check it out when you have some time, because shows are more fun when you can see the person who’s talking to you.
In today’s show, we are going to get into questions from the BiggerPockets community. What that means is, you, the people listening to this podcast, the people on the website, the people who will be attending BP CON, the people who love real estate investing, just as much as I do, get to ask your specific questions about what to do in your specific scenarios, as well as overall, general questions to help you Wade through the hurdles that you’re facing, making progress, building wealth. I love doing these. I love being able to help you. And I love you guys for submitting questions. So, if you would like to be featured on the show, just go to biggerpockets.com/david and submit your question there.
In today’s show, we get into some really fun stuff. In fact, some of it I’ve never answered before. We talk about how to help your parents with retirement using real estate investing. We get into what to consider as an investor, if you’re in a different country, that’s real long-distance investing. And we talk about how to rinse and repeat without putting 20% down on every single deal. We also get into, if an ADU should be built, how the ADU should be built, and how to structure, which moves to make, in which orders to make them, for several different callers.
Today’s quick tip, check out the BiggerPockets’ On the Market Podcast. We at BiggerPockets have brought to you a new podcast where we talk about what’s going on in the market and how you can be prepared to make the best choices for your financial future, by being educated. All right, let’s bring in our first question.

Arturo:
Hi, David. My name is Arturo. I am originally from Mexico, but I have been living here in Denver, Colorado for the last seven years. My background is in architecture and I just recently made a switch to real estate development. I have no deals yet, but I’m eager to take action on this in 2022 and get the first one going. My question to you is, for my first deal, should I leverage my knowledge and experience in architecture, project management, and real estate development, and do a more complex, higher risk deal, like a subdivision or a ground up development? Or should I take a more “conservative approach” and try one of the more common paths like wholesaling or a fix-and-flip, or house hacking?
I do know that you guys often recommend just get the first deal going, get some momentum, but I also feel like I have a unique set of abilities and knowledge that I can leverage to my favor and do a more successful deal. Let me know your thoughts. Thanks.

David:
Hey there, Arturo, thank you for the question. That was very well articulated. What I hear you saying is that, “Hey, I understand that the majority of newbies are recommended to get into something that’s a little more low-risk, with less moving pieces. Something like house hacking, low down payment options, but I have a skillset other people don’t have.” You understand architecture, engineering, you’re a builder. And I think this is a really interesting question. I’m glad you asked it, because we can get into some stuff here.
What I would recommend about this, is that you can take on projects that use your skillset more than an average newbie. So, a newbie is just somebody who hasn’t done something yet. They don’t have experience, so they don’t know what they’re doing. It’s not like because you’re new, you can’t do what experienced people do. If you have the experience of what they have, you obviously can. Now with building, you do have that experience.
So, I think you can take on a project that would need a bigger rehab. If I was you, I’d be looking in more expensive areas for houses that have problems, stuff that has foundational issues, roof problems, functional obsolescence. The floor plan is terrible. Something where this house is not very demanded by the rest of your competition and they’re not looking for it. Something that will require more work. But I don’t want you to fall into the trap of thinking that because you understand building, that you can make the numbers work on a property. Those are different skillsets, they’re not the same thing.
You still need to be keeping it easy when it comes to finding something that’s going to cashflow. That’s not going to require a ton of money being dumped into the property, that’s going to make you go broke. So, my advice would be, you find a more simple asset class, a small multifamily would probably be the best way to start, or a house hack. Within that asset class, that’s simple, look for a more complicated opportunity. Something that needs more work, that other people wouldn’t be able to handle. Something where your expertise can save you a lot of money, where maybe somebody else would have to hire an engineer to fix the problem, you can do it yourself. I think that’d be the best way to combine both elements, your strength, which your weakness, which is inexperience. You’re in a really good spot. I really hope to see you do well, continue working and making money and putting that into real estate. Let me know how it turns out.
All right, our next question comes from Justin Tomlinson in Trumbull, Connecticut. “How can I dominate a market as a brand new real estate agent, who is also brand new to the area and does not have the advantage over other agents? As you said in the video with owning properties or other investments. Where is the best place to start to gain the knowledge and market mastery to dominate my market?”
All right, Justin, the first thing I would say is if you want to dominate a market, what you’re really saying is, “I want to help more people than my competition.” You want to work with a lot of buyers and sellers. So, I wouldn’t look at it like how do I go dominate this market? Because you’re not really competing with other agents. This is a common misnomer amongst real estate agents. In their head, they think that they’re competing against the other agents in their office to get the client. But the reality is, very few people ever talk to several realtors. Most people find one realtor that makes them comfortable and they roll with that person and they hope it works out.
So, you’re not competing with the other agents in your office, because you’re not lining up for interviews with the same clients that those agents are going after. There’s nobody stopping you from selling more houses, other than you. So the question isn’t, how do I dominate my market? Or how do I beat my competition? You don’t have competition. The question is, how do I make myself someone that buyers and sellers feel comfortable with? And this is something that I’ve had to learn. If I get out there and I get the word out that I’m a realtor and I make people feel comfortable with me, they’ll use me. But if I start focusing on other things like The One Brokerage or my own investment opportunities, or a new book I’m writing, and I stop talking about what I do, people don’t know who I am. They use other realtors.
The fallacy is, we expect our phone to ring and people to come to us, and that’s not how this business works. You got to get out there and you got to go to them. One thing that makes people feel confident and comfortable choosing you as their realtor is when you also own real estate, especially if you own several properties. Now, you can sell someone who’s a little hesitant on buying a house with house hacking, but you can sell it even better, if you do it yourself. You can help investors with buying homes, but if you own rental property yourself, you’re much more likely to do so.
When I’m looking to buy in different markets, the first thing I want is a realtor who owns these assets themselves and has connections in the space that I’m going to need. If I’m looking for short-term rentals in Arizona with the realtor and they don’t own any, who’s going to answer my questions? It’s tough. Now, if I’m working with an agent that owns some of these asset classes themselves, or has helped so many other investors with that asset class, that they already have answers to the questions I may have, that makes me feel comfortable.
So, start by thinking about with a client, what do they want to see? A lot of realtors will say, “What car should I drive? How should I dress?” The question is, well, what’s going to make your clients feel comfortable? If you’re dressed super nice and a really expensive car, but you’re selling houses to blue collar people, that might make them feel uncomfortable. And likewise, if you’re working with high-level executives in Manhattan, but you’re rolling around in a Toyota Corolla and jeans and flip-flops, looking like Brandon Turner, that might make them feel uncomfortable.
So, the question that every real attorney needs to ask themselves is, “How do I make myself come across what a client is looking for in a real estate agent?” I would definitely get my newest book at BiggerPockets. And I had no idea that this question was going to be asked, so this wasn’t intentionally meant to plug it. You can find it at biggerpockets.com/skill. SKILL is a book that is the sequel to SOLD, that teaches people how to become a top producing real estate agent. And one of the first chapters in that book is all about top producer characteristics. They are the qualities that every single top producing agent has. And if you find those and you emulate those, you will appear to the public as a top producer and they’ll be much more likely to pick you as their realtor. Once you’ve got that down, it just becomes a game of evangelism. Get out there and tell every single person what you do and that you want to help them.

Roy:
Hi, David. I’m Roy Gotasdinar from Tel Aviv, Israel. First, just wanted to give you a fun fact. So, there’s a huge community of real estate investors in Israel, and we all follow BiggerPockets, the podcasts, the forums. And the names David Greene and Brandon Turner are household names in Israel. So, I thought you guys might like to know that, that you’re famous halfway around the globe.
Now a bit about me, I started investing a bit over two years ago in two markets. So, in Ohio and in North Carolina. Right now, I own eight rental units, single-family properties, doing BRRRR. Got another 200 contracts, so hopefully by the time this goes live, the number goes up to 10. Now, my question has two parts. First one is, as a foreign investor, I’m limited in the financing I have access to. So, I’m capped at 65% LTV with interest rates slightly higher than a US borrower. So question is, how would you recommend scaling and growing my portfolio quick, if you know that I’m limited in the financing I can get? Meaning it’s not 75 or 80, but 60 to 65.
Second question is, as I’m growing my portfolio, I realize that I’m getting more debt and I’m more exposed to the risk of not being able to handle my payments. So, I was wondering if you have any rule of thumb or benchmark regarding how much money you should have in reserve, so that if one, two, or three of your tenants don’t pay their rent on time, you’re not at risk of defaulting on your payments? So, thanks again. Really appreciate everything you’re doing. And I would be willing to come and be a guest at the live show. I would love to. Thank you.

David:
All right, Roy. Well, thank you so much. I had no idea that I was known in Israel or that BiggerPockets had a following in Tel Aviv. That is very cool. So, thank you for letting us know. You brought up some really good points that I think applied to a lot of different people. The first was, how do I keep buying properties? Now, I can tell from the questions you’re asking, Roy, that you got the bug. You’re falling in love with real estate. You’re thinking really big plans. You’re like, “I want to own every single house in the world.” And I remember being in that exact same place myself, where, when the man who owns the Keller Williams that I came to work at, sat down with me and we went over what drives me. He’s like, “Oh, you just want to buy everything in the country.” I was like, “Yeah, I just want to own all of it.” That has since changed, but I recognize those same drives in you.
When it comes for a foreign investor buying properties, you gave some really good information and you hit the nail on the head. The biggest hindrance is that there’s higher down payment requirements, often 35%. Now, most of those loans are done on a debt service basis. So, what that means is they’re going to look at what the property makes for income and qualify you based on that, but your rate’s going to be higher. Today’s rates are probably in the 8% to 8.5% range. And you can’t buy a primary residence, you’re only able to buy rental property.
You should also note that the monies that are going to be used for the transactions have to be kept either in an American bank or a bank that’s approved by lenders as American approved bank overseas. But your biggest hurdle’s going to be how much money you have to put down on the house compared to the average investor. If your competition can put down 20%, you got to put down 35. You’re going to scale slower.
So, here’s a few things that you can do to make sure you always have capital. One, I have a different approach. I know this is a real estate investing podcast, but I will still say, for the majority of investors, I am a fan of them continuing to work and actually focus on how to make more money, how to grow a business, how to work better within the business, how to get into a sales position or a commission-based system, do something to put more pressure on yourself, to earn more money, to invest in real estate. Don’t always look to real estate to replace the way that you’re making your money.
Number two, can you flip a couple properties and use that money to fund the down payment of other properties? Maybe not everything has to be a rental. The reality is most of us that are doing business like you, Roy, or we’re scaling fast, some of them are going to be great and some of them aren’t going to be so great. And it’s okay that not every deal is a winner, but if you do well and you hit value add opportunities and you’re buying in the right areas, you’re going to gain equity. And it’s okay to sell the ones that aren’t performing well, but have equity, and use that money to fund future deals.
So, maybe you need to work out a system where for every two rentals you buy, you flip a house. Or maybe every three rentals you buy, you flip one property, or you do something else to make sure income is coming in, so you can keep buying. The last question you asked is another problem that we have when we get crazy and we get the bug and we look to buy every property we can, the question starts to arise, “What am I going to do if I can’t make this payment?” Now, this is especially tricky in the market we’re in right now, because none of us know if it’s going to continue to run up, or if it’s going to stall, or if it’s going to go down. And if it does go down, how long before it goes back up.
There’s a lot of uncertainty in the market that we’re living in. So again, my advice to you is going to be, keep more money in the bank. Now, many people will say, “Put a bigger down payment on the house to decrease your risk.” I just don’t think that’s sound advice. If you put down 50% instead of 35%, it’s not going to affect your payment that much. If you don’t have a tenant in there, the difference in your payment between 35 and 50%, isn’t going to matter if you’re getting no rent. And real estate tends to work where either you’re getting your rent or you’re getting no rent. It’s not like tenants are saying, “Hey, I’m going to pay you 65% of what I owe you.” To where you can try to match that up with what your down payment is going to be.
You’re better off, in my opinion, having that money in the bank, in reserves that you can use it to make a mortgage, to fix up a house, to pay for an eviction. All the things that you need to run your business require liquid capital. So, I’d rather that you have a little bit higher of a loan balance, but more money in reserves to make the payments on it than you throw that money into the house as equity. And when the market crashes, there’s nothing you can do to stop that equity from leaving.
If the market crashes while you have money in the bank, you can either buy more property or you can weather the storm. So, my advice to you, to sum that up, would be to keep working and keep setting money aside. And only scale in proportion to what you can handle, if we do have a correction. Thank you very much for the question, Roy. I love hearing about the influence that we are having at BiggerPockets in Israel. And I hope we hear from you again.
All right. We’ve had some great questions so far and I want to thank everybody for submitting them. I also want to ask you to make sure that you like, comment, and subscribe on the BiggerPockets YouTube channel. Let us know, what do you like about these shows? What questions do you wish that we would ask? Do you think I should have gone into it longer and given a more in-depth example? Or do you think that I hit it just right? What do you think about the level of analogies that I’m giving on a show? Do you want to hear more of them or less? Let us know in the comments, what you like about our show.
In this segment of the Seeing Greene Podcast, we get into comments that other listeners have left in past shows, and sometimes they’re fun, sometimes they make you think, and sometimes they make me cry. The first comes from Dan Mercia, “Love the show. It has opened my eyes to a whole new mindset for my future and goals. My question is one that I haven’t heard yet. Everyone talks about having five, 10, 15 properties. How many mortgages can one have and how does one own more than two?”
Well, Dan, first off, this would be great to go to biggerpockets.com/david and submit as a question there for me to answer in full, but I’ll give you the short answer is, there is no limit to how many mortgages you can have. There is no law on the books in our country that says you can only have so many mortgage, at least not that I’m aware of. There are limits to how many Fannie Mae or Freddie Mac mortgages that you can get, because those are insured by the Federal Government and they tend to limit it to 10. Now after four, it becomes much harder to get the loans, but after 10 you can’t get anymore.
So, once you get 10 Fannie Mae or Freddie Mac loans, that’s where you have to switch and start looking at credit unions, portfolio loans, debt service loans. What we call non-qualified mortgages. Now, that doesn’t have to be bad. My company, The One Brokerage, does non-QM loans all the time, but they’re still 30-year fixed rate, safe loans. It just means that they’re not conventional mortgages. So, don’t despair, you can keep getting mortgages forever, as long as you can get qualified for them, but they won’t have the same terms as the Fannie Mae, Freddie Mac loans we all love.
The next comes from Five Deadly Venoms, that’s the screen name. “Hey, David. Thanks for making time to share all your knowledge. I’m definitely going to have to replay the return on equity versus return on investment part a few times.” Yeah, I don’t blame you for that. That is a complicated topic, but it’s still worth knowing. “I’d love it, if you could expand on that with an example, clearly it would be important to know when to sell. If it’s in a book, blog, or other video, please share and I’ll learn from whatever resource you have. Thanks again. Love your videos.”
All right. Thank you, Five Deadly Venoms. In long-distance investing, I do give examples of what it’s like to sell in one market and then go buy in another, taking the return on equity that may be low in a property you have in one market versus a higher return on investment you can get in another. I’ll give you an example of myself. I recently sold 25 properties in Northern Florida that had a lot of equity, but weren’t cash-flowing as good as I wanted. I’m taking that money and I’m putting it into more properties that I’m hoping will cashflow more.
If I looked at the equity that I had in my Florida portfolio, the return, meaning the cashflow I was making, was very small compared to the equity that I had. As I go reinvest that money, I’m thinking I can get a higher return on investment, ROI, on the new properties I’m buying, as well as taking on more debt, which to many people is bad, but for someone like me, that believes inflation is going to continue to occur, is good. And I’m also going to buy in markets that I think are going to grow faster than the market that I left.
So, if I do this right, these new set of properties I buy will continue to improve in value while giving me more cashflow than I was getting. And at a certain point, their equity will be greater than the return that they’re giving me in cashflow. I will then sell those properties and do the same thing again, years into the future.
Our next comment comes from Alexis King. “Hi, David. I enjoy the longer answers from you. You have so much to share and I like the way you explain things. I bought four properties last year and I’m looking to expand this year. Love the T-shirt since we are in a be comfy at work world, now. Also, I already booked my ticket, flight, and room for BP CON.” Well, Alexis, you sound like a BiggerPockets diehard. And I am going to be excited to see it at BP CON. Anybody else, if you want to check out BP CON, it’s in San Diego this year. You could go to biggerpockets.com/events and get your ticket there. In my experience, they do sell out. So, if you’re thinking about it, you should go grab it now, while you can, and maybe you’ll run into Alexis.
Alexis, thank you for letting me know. I’ve been sticking with the T-shirt vibe. It sounds like more people are liking that look than the more fancy, buttoned-up look. And I appreciate that. Also, thank you for letting me know you like the longer answers. If anyone disagrees with Alexis, let us know in the comments that you want a more concise answer or a shorter show.
Our last comment comes from Angelo. “Hey, David, great answers. Can you please take a second to review the question somehow, when you fire off answers, you miss things. Green Bay, Wisconsin, was the market the duplex was in. The tech industry is the industry the high paying W2 is in. Thanks.” Angelo, you are likely a high C on the DISC profile and you’re looking at the details. Yes, it is probably entirely possible that I said the wrong name of a city when it was Green Bay, and I might have said something else. I try very hard to articulate where I got my thought process from and why I’m giving the answer. So, that if I get a detail wrong, like I say, triplex instead of duplex, or Green Bay instead of Tampa Bay, people can still understand the logic and the principles behind the advice that I’m giving. And I also do try to review the questions where I restate what the person asked. I can definitely keep doing that and try to do better. Thank you for that feedback.
All right. Are these questions resonating with you? Do you like this feedback? Are you liking these Seeing Greene episodes? Let us know when the comments on YouTube, so we know what type of information we should give you. And I want to hear from you, please go to biggerpockets.com/david and submit more questions for me to answer on these shows.

Andrew:
What’s up, David Greene and the David Greene team. My name is Andrew Terry. First of all, I want to say thank you for BiggerPockets, David Greene. Rob, very good addition. I’m really loving what you guys are putting together. The new content is excellent. I have been listening to BiggerPockets since the beginning of the pandemic. So, quick about me, my wife and I have a travel company that we ran for about 10 years, which led us to buy this duplex, which I’m standing in front of, which we house hacked this side right here. We rent out that side right there.
Bought it in 2017, we do trips to Cuba, or were doing trips to Cuba. Pandemic happened, lost the travel company completely. And I was like, “Shoot, what do I do?” So, I started listening to BiggerPockets, watching Robuilt also on YouTube, getting all this different information and inspiration and all this kind of stuff. So, thank you guys very much, you helped me through a very difficult time. My wife was pregnant during the pandemic. We have a year-and-a-half year old baby now, who’s lovely, but dadda didn’t have a job, mamma didn’t have a job. That stuff was rough, dude.
So, I pivoted, I got myself real estate license. Real estate was the only thing that was working while travel was not working, and continues to be really slow. So, I got a real estate license, which is great. I’m here. So, I’m going to give you my breakdown. Ready? This is the question. We bought a duplex in 2017. We house hacked this side. Behind that building right there, there’s a free standing garage. We have a permit to make an ADU from the City of Los Angeles. They approved us and all that kind of stuff. It was a long and kind of expensive process, when I thought it was going to be cheap.
So, we’re able to do this ADU. This is the issue, we have equity in the house that we cannot unlock, so we cannot get to a HELOC. I don’t want to do a cash out refi, I’m going to go in the shade while I do this, because we just did a regular refinance. So, I don’t really want to do a cash out refi. We have a bunch of equity in the house. They will not allow us to do a HELOC because our travel company did so poorly in 2020 that our taxes reflect that.
The other part of it is, so we want to build the ADU to then rent it. We would like to rent our side that we’re now currently living in, that we’re house hacking. Rent the ADU side. So, turn this duplex into a triplex. Move to a single-family home here in LA, where we live, in Highland Park. So, A, there’s that, the ADU question. Do I get a HELOC? Do I just get a traditional loan to build it? We’ve had a couple of people that have said about 40 to $60,000 because it’s just a conversion, not a full build.
Part two of the question. So, an SBA loan for our small business, the travel company, is coming through to the tune of about $250,000, which is amazing. We don’t have to pay the loan back for three to four years. The interest rate on it is super, super low. It’s pandemic rate low. So, it’s around 2.5% on it. What do I do? I can’t really HELOC the house, or can I? Do I wait for this SBA money to do potentially that? Do we buy a single-family home here in Los Angeles?
Or, I’ve been looking into Tucson, Arizona. Do I take that money, invest in Tucson, Arizona, use the cashflow to help us rent something here and rent this out as a triplex? I know it’s a big old question. But, dude, you guys are the best, thank you very much. I was listening to the podcast yesterday and I heard that you’re taking questions. So, let’s see if you guys can help me with my query. Thank you very much. Have a good day. I appreciate what you guys do. Bye.

David:
Boy, Andrew, you have a lot going on in that mind of yours, between those two ears. And I love it, man. These are all really good questions. When I’m listening to you talk, I see a vision in my head of, your plan is not assembled. You’re still in the brainstorm phase. You’re going through all of these possibilities. And while I’m glad you submitted this question and I want you to keep doing so, I also just want to clarify, I can’t give you quick, concise, direct answers when the plan is still being formed.
So, what I can do is maybe try to give you some advice on how to form that plan and what some options could be. And then later, if you get a little bit closer and you submit the same question again, with some more detail and some more structure, then I can give you the specifics of what you’re looking to do.
So, you mentioned that you’re locked on a HELOC, which pardon the pun there, you’re not able to get one, but I don’t think you said why. So, the first question I would ask is, what’s stopping you from getting the HELOC? The next thing I would say is, if you can’t get a HELOC, can you do a cash out refinance? There’s different ways to get at capital.
Now, something you mentioned about the ADU only being 40 to 60,000. I really like that. Especially if you’re in Highland Park, Los Angeles. I have a real estate team there, we can help you get your next home, and we can also help with this ADU that you’re trying to build. 40 to $60,000 is a really, really good return on your money. And you mention this because you’re not building an ADU from the ground up, you’re just doing an extension. And that’s worth noting for all the listeners, if there’s ever an opportunity where you can extend onto a building you already have, not create an entirely new structure. It is much more cost efficient and therefore gives you a much higher ROI on the money that you’re putting in.
So, I think this ADU needs to happen. You got to find some way to do it. If you don’t have the cash in the bank, a good option would be a cash out refinance on your house. If you like your interest rate and you don’t want the rate to go up, because that’s likely why you didn’t propose that in the first place, a HELOC would be a really good idea.
Now, you mentioned the SBA loan, and I’m not an expert in SBA loans and I’m not giving legal advice, so I need to clarify that, but I wonder if you’re allowed to use that money for the ADU? Is the SBA loan related to your travel business or is it related to your rental property business? Because if you’re moving out of this house, at some point that may qualify as a rental property, that is a business, that might be something you could use the SBA loan for. I would definitely check with the person who’s helping broker this loan for you, to find out if that’s the case.
Now, if you can’t use the SBA money for that, but you’re saying that you can use it to go buy something in Arizona, I would wonder is it because it’s your primary residence, it means you can’t use that money? If you moved out, bought the single-family that you wanted to move into, and then used the SBA money to put in the ADU, because it’s a rental, that could be an option for you.
It sounds like you got money coming in from all kinds of different places. So, what we have to figure out is, how are you legally allowed to use the money that you’ve already got? Another thing I would say is, you don’t have to look at it like, “Can I take this money and buy a place in Arizona and use the cashflow to help supplement my mortgage on my home?” It gets tricky when you start looking at, I use this house to pay for that one, and I sold this one to buy this one. At a certain point, you just have to understand, I have debt. I have income. I’m trying to decrease the debt or the money I owe, and I’m trying to increase the income I make. And they’re not always tied to a bunch of other properties. I think people can make this more confusing than it needs to be, when they start looking at linking the chains together.
Now for years, Brandon Turner and I, would describe real estate this way, because it makes sense for a brand new investor who doesn’t have anything to connect the dots. “Oh, if I buy this house, it can pay for that. If I get that, I can go get this.” And it would get them moving in a direction. But once you get a couple properties, you have to let go of that way of looking at things.
When you said investing in another state, because Los Angeles is insane right now, I want to push back a little bit there too. You mentioned investing in Arizona. If you go to Arizona, they’re all saying, “It’s insane right now.” If you go to any of the states that you would think, “Oh, I’ll go there, because California’s too hot.” Prices, proportionally, could be even hotter in some of these out-of-state markets than what you’re getting in Los Angeles. They just seem cheaper to us Californians, because we’re used to prices that are so high.
So, don’t assume that you’re going to go to another market, like when I first wrote Long-Distance Investing, and get a much better return. When I wrote that book, it was a competitive advantage I had, to be able to buy in other markets where other investors weren’t. Based on that book, this podcast, and the popularity of real estate investing in general, the days of that being a competitive advantage are gone. Everybody now is looking to do the exact same thing you are and you’re going to be jumping into a market that’s just as hot or hotter than the one you’re in.
So, I like investing in the market that you’re in, because you can use small down payment loans to give yourself the advantage. If you can go buy another place to house hack, put 5% down and use some of that money from the $250,000 SBA loan, you’re good. If you can use the SBA loan to fund other parts of your life or business and therefore, free up cashflow from your personal self to put into real estate, you’re good.
Sometimes the money has requirements on how it can be used, but if it doesn’t, I definitely wouldn’t worry about where it’s coming from. It’s just money. Now, if the SBA loan comes with an interest rate, you need to be very careful that whatever you go use that money for, will make you more money than what it is costing to borrow the money in the first place.
Generally speaking, I love your energy. I love where your thoughts are. I love what you’re thinking about. Spend a little bit more time, getting some clarity on what you’re willing to do. If you want to turn your current property into a house hack and then move into a new property, that would be the first plan we should come up with, and then we should start talking about if you want to invest out of state. But if you get clarity on the big things, the small things tend to fall into place. And I’d love to hear from you again.
Also, Andrew, super grateful that you’re willing to help plan a trip for my company to go to Cabo. I went there last year and absolutely loved it. I tried to record a podcast with BiggerPockets, and the internet was really bad. It was notorious, it was with Scott and Mindy. And I remember whales spouting in the background behind me, but you couldn’t even see it, because the internet was going in and out. I loved that trip other than the one internet thing. So, I’d love to take you up on that. If you’d like to send me a DM on Facebook Messenger or on Instagram, I’ll do my best to find it. And I’d love your help. Thank you very much. And we’ll hear from you soon.
All right. Our next question comes from Nick E. in Indianapolis. “What are the best ways to help my parents create cashflow for retirement? They’ll be renting in three years and are looking for new ways to put their savings and equity to use. They’ve invested passively in other people’s deals, but are looking to be a little more active on the next round. They’ve got around $50,000 from their HELOC to invest. I was thinking of us going in together on a short-term rental with us both putting 50% and taking 50% of the profit. But I know that financing and operations can be more difficult with partners, especially family. They won’t really do anything themselves, so it would really be me bringing them along. So, I’m looking for something that would be advantageous for us both.”
All right. Well, first off, Nick, kudos to you for wanting to take care of your folks. I like where your heart’s at. I also like that you’re noticing that a partnership can be tricky, and so, in wisdom, you’re reaching out for advice. Let’s start there. The first thing I would say is, though your heart’s in the right place to want to help your parents, your head is not in a point where it really can. It sounds like you’re learning real estate investing at the same time that you’re trying to help them prepare for retirement. And all they have is $50,000 to help them do this. And it’s not even 50,000, it’s 50,000 attached to debt, because it’s coming through a HELOC.
Your parents are not in a point where they can actually make significant steps towards retirement, because they need to improve their financial education as well. Now, if you’re looking to help them, they may not be into real estate like you are, and you might find yourself doing all the work and all the risk. And if it goes bad, they’re going to blame you. So, here’s my advice, before you help someone next to you, you got to help yourself. Just like the flight attendants tell you on the plane, “Before you put the oxygen mask on your kid’s mouth, you need to put it on yourself.”
My advice is that you should buy a short-term rental yourself and manage it and work out a lot of the kinks. You should house hack something for yourself and manage it and work out a lot of the kinks. You need to go make some of the mistakes that every single newbie makes, just when you’re learning to ride a bike, you’re going to fall over a couple times and you’re going to scrape your elbow and scrape your knee, before you get your parents’ capital involved in this deal. They’re probably only going to give you one shot. And if you blow it, they’re going to resent you and it’s also going to hurt their opportunity to retire.
So, before you say, “Hey, let’s all jump in and do this together.” When they’re also inexperienced. My advice is you go do some of this yourself. Now, maybe they co-sign for you on a house hack, if you weren’t able to buy, maybe you let them buy into that opportunity, so they get some of the equity by giving you some of the money for the down payment. But as a newer investor, I’d want to see you do some low-risk, but high work opportunities. I mean, renting out the rooms on a big house that you house hack, or like you mentioned, a short-term rental in a market that does get a lot of people vacationing there, where you’re having to run the operation, but you’re learning a lot. Once you’ve got some experience and a proven track record, then you can talk about trying to help out your parents or using their money in the deal. Hope that helps.
Next question’s from Patrick Manari in Northeast Ohio. “David, I’ve been preparing to get into real estate investing for the last two years and I’m finally ready to get off the bench and into the game. I’m beginning my career with wholesaling, so that I can put together reserves, capital to help me with my long-term goal of buy and hold rentals. My question pertains to direct mail marketing. I have an understanding of the process and I’m prepared to do very targeted marketing, while tracking it to make adjustments as needed. My problem is, how do I find good targeted lists of motivated sellers? For example, bankruptcies, divorce, pre-foreclosures, et cetera. I’d prefer to be able to compile these lists as frugally as possible, as my startup marketing budget is pretty limited.
It’s worth noting, I do have my overhead factored into my wholesale cost and a big part of that is boosting the marketing budget as deals come through. I predicted numbers conservatively and look to come out of each wholesale deal with a 23% profit margin, assuming a very low assignment fee. I love the BP community and really enjoy the overhaul to the podcast format. Thank you very much. Patrick.”
Okay. Full disclosure, I’ve never put together a list. I’ve never marketed that way. I’ve never done direct mail. So, I’m not the best person to answer this question. If I was in your shoes, the first thing I would do is I would Google direct mail companies and I would get a baseline understanding of what they charge and what these lists are made of. The next thing I would do is go into the forums at BiggerPockets and ask this very same question, because many of the people that have experience with direct mail and putting lists together, are doing their stuff through BP and talking about it there.
The last thing that I would do is I would look for a company that offers you a form of a CRS and a list, all in one place. So, I know there are companies that help people do what you’re trying to do. They find the list, they give you access to the list and then they even help you with sending out the cards. If you can find a one-stop shop like that, you’re more likely to have success moving forward, because you won’t have to wonder about, what’s the thing that’s going to pop up that I didn’t see coming?
Now, all that being said, if you’re working on a small budget and you’re trying to make a business out of this, my advice is, don’t just start mailing lists. Everyone else is doing the same thing. They’re getting tons of these things already. This is not a new strategy. The people who are going into foreclosure, who have received notice of default, is getting letter after letter, after letter, from other people that are doing the same thing.
What people aren’t doing is the word of mouth campaign. If you can get ahold of people directly, who are in these situations and make a relationship with them, you’re not just one letter that’s been sent, trying to get a phone call back. You’re a human being that they remember, that made an impact on them, where they are more likely to work with you. So, my advice would be you take the relationship angle. You start telling people everywhere you go, you’re looking to buy houses that you can close in cash, that you can do a quick close, that you want to buy ugly homes. You get the word out there that that’s the case. You start talking to real estate agents who may come across deals that they don’t want to list. And if they can get a commission just by bringing it right to you, they’ll do so.
But look at the personal road before the direct mail road, if budgeting is a problem. The thing I don’t like about the direct mail road for a brand new person who’s trying to build a wholesaling business, is you’re competing with the big dogs that have huge budgets and can spend a lot more money than you can, to get the same result. I don’t want to see you put yourself at a position of disadvantage as a new person. So, work the relationship angle, where you do have the advantage.
Last piece of advice to you, since I know that I’m not the best person to answer a direct mail question, although I’m very grateful that you did send it in, so we can make it part of the Seeing Greene podcast. Check out Anson Young, he wrote the book for bigger pockets, Finding and Funding Great Deals. And he talks about finding off-market opportunities. He does a lot of business in the Denver, Colorado area, which is the mecca for BiggerPockets, where it all got started.
Check out episode 480 of this podcast, where we interviewed Dan Brault, who is a successful wholesaler, who is doing a lot of exactly what you’re talking about. Isn’t it awesome that BiggerPockets has episodes about almost every single question that gets asked and you have a resource you can go right to, that will give you specific help on what you’re dealing with?
Side note, we are trying to do more of that at BiggerPockets, where we are bringing in specialists to talk about specific topics of real estate. I’m talking about a multi-family specialist, a short-term rental specialist, an organization specialist, title specialist, entity creation specialist, and wholesaling specialists. If you like that, let me know in the comments that you prefer that style, or if you like the tried and true method of, I just want to hear a story from somebody. Let me know that as well.

Paula:
Hi, David. First, I’d like to start off by saying thank you so much for hosting this wonderful podcast. I love it so much. I religiously listen to BiggerPockets and it’s pretty much the only podcast that I can bring myself to listen to. So, thank you so much for all your hard work and all of your team’s hard work. It’s so, so appreciated.
But yeah, my situation is that last year I bought my first rental property here in New York City, and it was a huge accomplishment for me because I saved up pretty much my entire life, little by little, till I finally had $50,000. And then, I took all the $50,000 and put it towards a down payment because at the time, I didn’t have a mentor or anyone to really helped me with strategizing this investment or future investments. So, in my head, I thought, “All right, well, the more I put down towards my down payment, the less my mortgage payments will be, and the less debt I’ll have. Sounds great.”
But now I come to realize that maybe it would’ve been beneficial for me to take out an FHA loan or something like that, where I could put less money down, still get a pretty good interest rate and potentially buy a second investment property a lot quicker. So, the predicament I’m in is that now I really want to buy a second property down the line, sooner rather than later, but I’ve pretty much left myself with $0 in the bank account.
So, my question to you is whether you think I should continue working my W2 job and save up little by little, which may take a while. It took me a really long time, the first time around, but it’s doable. And that way I can save up for a 20% down payment on a second investment. Or, if you know of any alternatives for a non-first-time home buyer in terms of getting another mortgage with a lower down payment? Whether that’s an LLC, I’ve heard a little bit about that. I’m not too well-versed, but that is why I’m bringing the question to you. Hoping you have any advice for me. Thank you.

David:
Hey, thank you for that, Paula. Good news is, I do have several pieces of very practical advice I can give you and I think they’ll help a lot. Let’s see if I can remember everything you said here. The first thing I want to address is you mentioned first-time home buyer program or deal. This is a bit of a misnomer in our industry. There are very few actual loan programs for first-time home buyers. That was a big thing, and that phrase first-time home buyer program came around when we had the housing crash, where lenders were trying to come up with ways to help people who had never bought a house before and the government was subsidizing some of those loans.
It’s not called a first-time home buyer program. It’s a primary residence loan that you’re referring to. When you get a primary residence loan, meaning you’re going to live in the house, you get the low down payment options that are much less than 20%. You can get 3.5% down on a FHA loan, five to 10% down or anywhere in between, on a conventional program. And there’s other programs, where if you’re going to live in the house, you can get less of a down payment. That’s what you need to look for.
Now, you can contact us or another mortgage broker and say, “Hey, I’d like to know about primary residence loans.” And they’ll tell you about the low down payment programs that they offer. But the good news is no, you don’t have to save up 20%. You could get in for much less than that. Now, small multi-family tends to have higher down payments, even in the primary residence world, than single-family homes. So, you want to talk to a mortgage broker about your options, and then maybe give us another video and say, “Hey, how can I decide if I should buy a triplex or if I should buy a big house that has a lot of rooms?” Maybe we run the numbers together and see which one works better.
Another thing I want to address is you made the same mistake I made a bunch of times when I was new, and most newbies make, is they assume that they are more safe if they put a big down payment on a property. I did this so many times thinking, “I’m safer if I put a lot of money down.” It’s just not true. What it does is, it makes you more scared because you have less money in the bank in case your mortgage doesn’t get paid or in case something breaks. And when a next opportunity comes, you have less money to put into buying that deal, so you buy less real estate and ultimately, you become a worse investor because you don’t get as much experience.
So, you don’t have to put down the maximum amount you possibly can on a house. In many cases, you’re better to put down less. And if there’s money left over, improve the property, make the property worth more, keep it in reserves. Do something with it, putting it into another property, use it to build an ADU on the property, make the property worth more, rather than just putting a lot of money down on the loan. It sounds like you’ve already realized that though, so good for you.
Another thing I want to highly encourage you, you said it, you scrimped and you saved to get to the $50,000 at your job. And you’re saying, “Should I just go through that again?” Well, the answer is yes, but let’s do it with a twist. My assumption is that you now have more confidence because you’ve gone through this process of buying a home. You are now a homeowner and you should be very proud of yourself, especially considering how hard and how long it takes to save $50,000 in today’s economy.
You also have skills that you didn’t have before, which is probably why you should have more confidence. Use that new confidence and these new skills to go to your boss and say, you’d like a raise or you’d like a promotion, you’d like a new opportunity. If there is no opportunity there for you, start looking at different jobs that you could make more money. Take the new skills you have and find a way to make more money, so you can save faster.
Now, do that in combination with saving up money, to get your next home with the lower down payment. Move out of the one that you bought first, make it a rental, buy another one that will work as a house hack that could be turned into several different units. And now you’ve got another rental property. You can fight this battle on several fronts. Saving more money, making more money, and investing it more wisely. And when you get all three working together, your wealth building starts to skyrocket and be supercharged. Thank you very much for submitting the question. Please submit another one and let us know an update on how it’s been going and what more we can do to help.
All right, everyone. Thanks again for taking the time to send me questions. We could not make this show if you weren’t doing that. So, I’m very grateful. We had a great response from our audience and I encourage you to ask more questions in the future, so we can do more of these shows. I love doing this and from what I’m hearing, you guys love hearing it. Submit your questions at biggerpockets.com/david. And know that I look forward to hearing from you, as does everybody at BiggerPockets, because we would not have a podcast, if not for you.
If you liked this episode, be sure to like and subscribe. And if you’d like to follow me on Instagram, on LinkedIn, on Facebook, on anywhere, I’m davidgreene24. Also, if you found this video on YouTube and that’s how you’re watching it, check out our podcast, you can get it on Stitcher, on iTunes, on Spotify, everywhere there’s podcast, the BiggerPockets Real Estate absolutely kicks butt.
We have more episodes other than this Seeing Greene style. So, you can check out some of the interviews that we do with very interesting and successful guests. And let me know what you think there. Thanks again for your time. Thanks for your attention. I know there’s a lot of people you could be listening to, and I really appreciate that it’s me, that we’re taking this journey on together. I will see you on the next one.