How did I do it? How could I buy 15 properties in one year? Some of these properties I sold during this timeframe, as I flipped a few, but most I refinanced, allowing me to create a real estate portfolio.

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This wasn’t easy to do, since I didn’t have a boat load of cash, but by using the following 6 methods, it allowed me to 10X my real estate investing portfolio.

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1. Home Equity Line of Credit (HELOC)

2. Buy, Renovate, Rent, Refinance (BRRR)

3. Private Lenders

4. Vendor Take Backs (VTB’s)

5. Joint Venture (JV) Partners

6. Vendor/Seller Credits

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So, let me walk you through an example of how you can use these methods in your real estate investing career right away, from start to finish, so that you too can buy more properties.

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#1: Home Equity Line of Credit (HELOC)

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The easiest way to buy real estate that many don’t even think to use or are even aware of being able to use. The sad part is, not many people use the equity in their personal residence to invest, many whom use it abuse it, purchasing depreciating assets. However, using the equity, which is the difference in the value of your home and the mortgage on your home, is a great way to instantly start investing in real estate.

The bonus, HELOC’s carry lower interest rates then your unsecured lines of credits, so the cost to borrow is very affordable, as well, the profit you make on the property your looking to purchase should also cover the interest your incurring on the borrowed debt.

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I tell everyone that no matter what they should open up a HELOC at their bank or credit union, even if only for a couple of grand, as you never know when you need funds. Plus, banks only like to lend when you don’t need the money, and don’t like to lend when you do, so having access to a HELOC is a great strategy.

What people forget though is they view this as their money, but it actually is the bank’s money, and you just pay interest on what you borrow.

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To Do:

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Go to your bank or credit union and speak to financial advisor/mortgage specialist about opening a HELOC. You will need to provide the necessary information for them to approve you, just like they did when you purchased your own residence. An appraisal will most likely need to be done on your home to verify the value of your home to confirm there is equity in the home that you can use.

Here’s an example of how the process will work:

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• Value of home - $300,000

• Mortgage - $150,000

• Equity = $150,000

• Bank Loans Up to 80% of Value of Home - $240,000.

• HELOC = $90,000 ($240,000 - $150,000)

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#2: Buy, Renovate, Rent, Refinance (BRRR)

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With your HELOC opened and your business now having access to $90K, you potentially have enough capital for the down payment on an investment property and the renovations. The main goal as I’ve mentioned before when using the BRRR way to invest in real estate is to buy properties under market value, with the best properties being distressed, needing work/TLC, or finding motivated sellers, which would allow you to buy the property below market value.

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First Step

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When analyzing the property you’re thinking of purchasing, you need to figure out the after repair value (ARV) of the property and the future rents the property could get upon completion of the renovations. Using a good Realtor will help you figure out these numbers, which are crucial because you need to make sure your rent will cover the mortgage and the properties expenses (this is why you need to know the approximate rents you can obtain once the property has been updated, before even purchasing it).

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Renovations

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When renovating a property, it’s a bit different then when your renovating a property to sell, in that you don’t need it to be perfect. You don’t need to have the best finishes, the highest quality products, because you’re not trying to attract a buyer, you’re just trying to make it look nice enough to get the highest rents possible, without breaking the bank in the process.

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Now, you still need to do enough updates so that an appraiser whom walks through to value your property can see the difference from before. Which means you need to focus on upgrading mainly the cosmetics of a home; kitchen, bathrooms, flooring, lighting, and fresh paint are the main ones.

 

Also, make sure to upgrade the curb appeal of the property; freshen up the landscaping, paint the front door, power wash the windows. The curb appeal is the first impression people have of the property, and if it looks unwelcoming, people won’t want to rent it, and an appraiser will take notice and right away assume the property hasn’t been improved.

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Remember, you want to stay mid-range on the finishes, because it’s a tenant whom will be living in your property, and people whom rent don’t always take the best care of where they live when it’s not there’s.  

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Renovations Complete

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Once the renovations are complete, go to your bank and let them know you’d like to refinance the property. They will then send out an appraiser, whom I suggest you meet at the property for when they do their walkthrough and even bring with you comparable solds that have occurred in the area and let them know the updates you did, as this will help in their analysis of the new value of the property.

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Be aware when using the BRRR method with single family homes vs multi-unit properties as banks and appraisers will look more at rental income for multi-units vs the comparable properties in the area for single family homes. If you are renovating, renting and refinancing a multi-unit property, make sure that you have tenants in the property before you get it refinanced then, because refinancing a vacant multi-unit property won’t do much for the value of the property, even if you did a ton of renovations. It will come down to the rents you are getting.

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The difficult part about using the BRRR method for multi-unit properties is that it does take more time until you can refinance the property, as you have to complete renovations, as well as rent the units. Be sure to factor in the time it will take to do all of this, so that you don’t get to the point where you really need the money back from the refinance, which is the best part about using this way to invest in real estate.

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To Do:

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When making an offer on a property that needs work, one of the rules you need to follow is to make sure your maximum purchase price is only 70-75% of the ARV. As well, make sure you’ve gotten a couple of quotes from contractors as the renovation process is key to investing in real estate this way and you do not want to go over budget.

 

Quick tip, even if you go with the lower quote from the contractor, use the higher quote as your actual budget, this way you’ve built in that buffer if and most likely when you spend more money on renovations. If you only have time to get one contractor in before you purchase the property, add 20% to their quote.

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Here’s an example of how the process will work:

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You purchase a property for $200K, estimate renovations will be $40K, and along with holding costs, results in only $81,804.12 of cash being committed to this project, less than the $90K you have from your HELOC. Upon analyzing the market, you assume the property completed will appraise for $300,000. The result would be then that you would get back almost all the money you invested, with only $3,004.12 still tied up in the property that came out of your own pocket, meaning now you own this property with almost none of your own money!

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#3: Private Lenders

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This is a great option if you can’t or aren’t able to get financing from a financial institution such as a bank or credit union. This could be due to numerous reasons, such as having a bad credit rating, already having too much debt or owning to many properties.

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Private money lenders are much easier and better to deal with as the money is private. This is the money you want to go after and build up a network of people whom would loan money to you. And they can be anyone, from your chiropractor, to your 2nd cousin, to your lawyer, to your kid’s teacher. These are people like you and me, whom are looking to get a better return on their hard earned money. By offering them a fair interest rate, which can be negotiated, they will be happy to loan you the funds to finance your real estate investments.

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When you use a private lender, they truly become like a silent partner, and as you build up your reputation and built up their trust in your business, you could eventually end up having them finance up to 100% of purchase price plus the renovation costs. I know of an investor in the Toronto area whom has built his real estate portfolio by using other people’s money, as a result of building a real estate investing business that people trust for him to make them a good return.

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To Do:

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Private lenders will vary in how much they will loan you, but if your goal is to have them loan you the full 100% of the purchase price and the renovations, you will need to show them that their investment is safe.

 

This is done by making them aware of the equity available in the property you are looking to invest in.

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Whether you are fix and flipping the property or using the BRRR way, they will want to see that if things go south, and the property has to be sold, the property is still worth more then what they’ve loaned you. The first step is finding a property that is below market value, and that once the renovations are complete, the property will be worth much more then what they are lending you. This is done by showing them your plan as well as the comparable properties in the area that have sold recently once they have been updated.

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Extending on the previous example:

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You already own one property using only $3,004.12 of your own funds, and using your HELOC, you went and purchased another property. However, with your money tied up in that project, another opportunity came across your desk, and you can’t pass it up. You call up your private lender whom you’ve developed a relationship with and share with them about a great investment property that you could purchase for $200K and with only $40K in renovations, will be worth $300K.

 

You send over the details along with comparable properties that have sold in the area that your Realtor has provided you. They gladly offer to finance the operation, most likely viewing the property themselves before they loan you the funds, and then calling you from time to time to see how the renovations are going. Upon completion of the renovations, you sell the property for $300,000, and the lender is returned their investment plus interest.

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#4: Vendor Take Backs (VTB)

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These are more commonly used during economic downturns, but with prices in some markets way out of reach, they can also be a good option for buyers in those markets as well.  This is because buyers are struggling to obtain financing from financial institutions, and have to look at alternatives to owning a property.

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For investors, this can work very well because it allows them to own a property with little to no money out of their pocket. And during times when it’s a buyers market, and the supply of properties is in excess of buyer’s demand, sellers become motivated. 

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when sellers own properties that are in need of updates, but can’t afford to improve the property, or most likely behind on their mortgage payments, and don’t want to lose the property to the bank, they become very motivated.

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I seen these being used when I first began investing in real estate back in 2013, as a result of the recession. Sellers were using these because they weren’t able to get what they were asking for on their property, so that they could pay off the mortgage. This was a result of the recession which cause property values to drop, leaving people with mortgages higher then the value of the home. Buyers knew this and to capitalize would offer to pay the higher price, if the seller agreed to hold the mortgage for them.

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For sellers, when they do this, the negative is they don’t get the funds from the sale right away. The positive is they avoid losing their home to the bank which will greatly affect their credit.

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The term for a vendor take back mortgage is negotiable, you could ask the seller to hold the mortgage for 1 year, 5 years or 10. As for the interest you would pay, sellers would want a return that would be higher then they could get with a low-risk fund. As well, they will be guaranteeing a return by holding a mortgage as the interest you as a buyer offer them is usually better than they can get elsewhere.

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A vendor take back mortgage doesn’t have to be for the full price of the property either. This can work for a portion of purchase price too, with the buyer either financing the other portion, or using their own capital for the other portion. If you are going to have the balance financed, most banks and credit unions won’t allow you, as they view it as owning the home with 100% financing, so this would only work if the balance was financed by a private lender.

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To Do:

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With these not being as common anymore, you will need to get creative in using them to purchase a property. The best way to implement a vendor take back mortgage is to purchase a property needing work/TLC and use a private lender for 80% of purchase price, and have the seller hold the balance of the mortgage.

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Let’s continue building our portfolio looking at this method in an example.

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You’re still renovating the property using the $90K from your HELOC. The renovations are still not complete on the property you purchased for $150K using the funds from your private lender. But another property came across your desk that you can’t pass up. A friend of yours told you about a seller who needs to sell their property so they can move to Florida to retire. The property is too much of a burden on the couple. It needs too much updating and they just don’t want to put more money into it. They want to move on.

 

However, it’s been sitting on the market for six months, and they can’t get rid of it. You approach the seller and let them know you will purchase the property as long as they hold the mortgage in the amount of 20% of the purchase price of $150K for a year. Your private lender’s funds are already tied up, so you find a hard money lender who charges much higher interest rates, to finance the balance of the purchase price. This is OK because you’ve already calculated this cost into your analysis and know the property will still make money after you renovate and sell it.

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The result is you own this property with little money out of your own pocket, other than possibly closing costs and land transfer tax. This could also be covered by the lender, however they may cap the loan amount, so you may have to come up with some funds.

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#5: Joint Venture Partners

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If you’re looking to grow your portfolio exponentially, having joint venture partners is a great alternative. Especially if you are looking to hold properties as rentals, as private lenders or seller financing (vendor take backs), usually requires you to pay them back much faster.

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Since investors are always short on capital, and finding a partner looking to invest their savings, but doesn’t want to be involved in the day to day operations, makes this method perfect for all interested parties.

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Tips: You can have more than one partner in a JV partnership, possibly one who provides the capital, one who provides the financing, and the investor who provides the expertise.

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To Do:

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To find joint venture partners, just like private lenders, will take time, but I have found it’s not as hard as trying to find a private lender. This is because there are many like-minded individuals out there who want to invest in real estate but don’t have all the capital to purchase a property, don’t have the expertise, or don’t understand a local market.

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A joint venture partner can be really anyone, not just your circle of people.

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The best way to start finding joint venture partners is to spread the word about your real estate investing business. Start letting others know what you are doing, that you invest in real estate. Share your projects on social media, tell your friends and family, attend networking events, join your chamber of commerce, go to meetups in your local area, start your own meetup, join a sports team, a gym, basically anywhere you can meet new people.

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The one thing you shouldn’t do though is go looking for partners and asking for capital. Just have it come up casually in a conversation. Most likely they will bring it up because they’ve heard that you invest in real estate, and that’s when you can mention you are always looking for partners. When they ask if and how can they get involved, that’s when you go into more details.

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Also, you don’t need a property in your back pocket to find a partner. Once you find an interested partner, contact them when the right property comes up.

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You will proceed as usual, but be sure to have a lawyer construct a JV partnership agreement to outline the details of the partnership. It’s best to make sure all partners understand their roles and responsibilities before moving forward.

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Tip: Remember when you bring on a partner someone else will now be involved in the decision making. 

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Let’s put this method to use in another example.

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You are almost done renovating your properties, and of course, another property pops up that will be a good investment. You reach out to a couple of people you met while attending networking events and who expressed interest in partnering on an income property. One shows interest, so you meet with them and show them an analysis on the return this investment would make if you were to split the profits. They are immediately on board. With you providing your expertise, and your partner providing the down payment to finance the property, you can purchase the property for $200K.

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#6: Vendor/Seller Credits

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Investors always ask me how to use vendor/seller credits to invest in real estate. They can help lower the capital required to close on a property. These are great to use if you want to buy a property with no money down.

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These credits are probably the best way and easiest way to buy a property and minimize the amount of money you need to come up with out of your own pocket.

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They are written into an offer, on schedule A of the purchase agreement, and upon closing, these credits get deducted from the amount owing by you, the buyer. The lawyer makes the necessary adjustments, with the credits being subtracted from the amount you owe upon closing. That would be the down payment amount of 20% plus any adjustments for taxes, and you pay the balance.

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When making an offer using vendor credits, I wouldn’t recommend putting enough vendor credits to cover the amount of the down payment, so you end up buying the property with no money down. The bank most likely won’t allow this. If used wisely, is the bank views these vendor credits as improvements that will be done to the property, either by the seller, or by the buyer.

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If you don’t use vendor credits, you will pay the minimum down payment, plus you will have to pay for updates out of your own pocket. When you include vendor credits in an offer, you can pay the minimum down payment plus the improvements to the property for the same amount of money out of your own pocket.

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Some sellers and Realtors won’t know what these are and will remove them from offer. When you include vendor credits, you will need to increase the purchase price by the amount of the vendor credit so the seller still ends up with the amount the property is listed for. This will result in the property being purchased for sometimes over list price. That could affect the appraisal, as well, since it means the seller gets more commission. being paid by the seller. 

 

You will need to explain to them when presenting an offer with vendor credits that the purchase price looks much higher because you added vendor credits.

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To Do:

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When looking to work with a Realtor, ask if they are aware of these, and if they have used them. Examples of vendor credits I have used when writing offers in the past are:

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• Seller agrees to install all new windows at a value of $10K

• Seller agrees to install a new roof at a value of $5K

• Seller agrees to install a new furnace and AC at a value of $5K

  • If upon closing, seller doesn’t perform updates, the amounts will be credited to buyer.

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Remember, even though you are including these clauses in the offer, stating the property is to be improved by the seller, you don’t actually want the seller to complete them. So, make sure to let seller know that.  It will defeat the purpose of using these clauses and will leave the improvements in the seller’s hands to improve the property, which might result in cheap work. It will also prolong the closing, since you will have to wait for the seller to finish the improvements.

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Vendor credits will result in the mortgage payment being a little higher, so be sure you can still afford to carry the property with these additional holding costs.

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Let’s apply this method to an actual example.

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Once again, you come across a property you can’t pass up, listed for $100K. Luckily, the funds from your HELOC are no longer tied up, since you sold that property. You have some capital again to purchase this one. However, you want to put the least amount of capital into a property. So you decide to use vendor credits to minimize the down payment amount upon closing on this property. To apply them, you will have to offer the seller the amount of the vendor credits you will be using over list price, which in this instance will be $115K. This is because the 15K in vendor credits upon closing will be deducted from the purchase price, leaving the seller with the same amount in their pocket as if you offered them list price; $100K. The reason you need to increase the purchase price by the amount of the vendor credits is because if you don’t, the seller would only get $85K on closing.

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Here’s a comparison showing you the amount of money you need upon closing if you used vendors credits, and if you didn’t use them:

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• Without Vendor Credits

  • Purchase Price – $100K

  • Down payment (20%) - $20K

  • Renovations - $15K

  • Out of Pocket = $35K

  • Seller Receives – $100K

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• With Vendor Credits

  • Purchase Price – $115K

  • Down payment (20%) - $22.5K

  • Less Vendor Credits - $15K

  • Owed on Closing = $7.5K

  • Renovations - $15K

  • Out of Pocket = $22.5K

  • Seller Receives - $100K

 

This is a win-win for both you and the seller. The seller gets what they wanted to sell their property for, and you get the property for $12.5K less out of your own pocket.

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WHAT TO DO NEXT?

 

BOOK A CALL WITH ME TODAY

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With 12+ years of experience, investing in real estate in the Windsor, Ontario market, Tyler Soulliere, Your REI Realtor and Educator, knows a thing or 2.

 

Whether you're looking to start investing in real estate, or looking to take the next step and grow your real estate portfolio, Tyler Soulliere, Sales Representative, Signature Realty Group, can help.

 

 

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