A lot of people want to invest, not a lot of people have money to invest. At least they don’t have the free cash sitting in a bank account. Many of us however do have credit cards that can be used to supplement aspects of the rehab budget which will creatively allow you to come in as a partner without depleting your cash or running away and not participating because you have no cash.
Rehab and Materials
If you are doing a rehab you are likely going to come in contact with expenses that can be paid with a credit card. This is most likely going to be on the materials and maybe even some labor if they are an established business and take credit card. You should volunteer to put a significant portion of the materials like the flooring, the carpet, the paint etc on your credit card which will help you get into the deal.
It is much easier to get a credit card than it is to get a loan. Use this to your advantage. This is exactly what Jay Morrison and Juan Pablo are doing. They know its easier to get a credit card than a line of credit or a flat out business loan. Knowing this, you have no reason not to get a home depot or a spark capital one credit card. Partner up with someone and throw 2-3k in materials while they cover labor. If you are really good you can even partner with a contractor and contribute the material where he contributes the labor and then split the upside after the flip.
Instead of waiting until you save up all the cash, put it on your credit card and then reverse sinking fund it by chunking out that balance over the next month or so. This will help you get in deals (and boost your credit score). This will help you get experience.
Most importantly, this will help you get deal equity. Deal equity is a term I made up where people are willing to engage with you more on a peer level the more deals you do. Step your deal equity up.
Finesse: Use what you got to get what you want
If you really want to finesse it you can even do a deal yourself with part cash and part credit cards. Most of us think the rehab budget has to come from either cash or a loan. No, use whatever money you can get your hands on. I have even considered, and likely will, leverage my stock account to get into a deal. No limits in 2018. Burn the ships. The 7% margin rate is drastically lower than hard money and they don’t charge fees or points and there is no balloon payment. Win. A large part of the wealth in real estate comes from the creativity required to get into the game.
I know what you are thinking… Credit cards charge 24% annually and how can the property beat that. Well, smart guy, that is 24% on materials where the property if you buy right could generate 40% cash on cash. Another thing to consider is that you can rapidly pay the credit card off but the property and the cash flow are forever. Forever ever. Get in the game!
This is an emergency
On a recent episode of the podcast Erika Williams mentioned that her clients don’t have cash but they have a 10k credit card. She asked them why they don’t use that to invest and their response was that they use that money for emergencies…. her response was that “this is an emergency”.
Your financial future is an emergency. Your lack of cashflow is an emergency. If you don’t have cash, use what you have to get into a deal. What you will realize is that once you get into the deal the cashflow from the deal solves the problems that you had at first (no savings, no deal equity) and opens you up to more deals. You get better at doing, by doing. Deals 2 and beyond take less effort than deal one took.
If you are interested in investing with our club on either the stock or real estate side we would be happy to welcome you into the partnership. Email firstname.lastname@example.org today to join.
Be great, invest well,