Breaking into Real Estate Investing with 90% Property Leverage

Diving into the world of real estate investing can be both thrilling and daunting. Many aspiring investors are eager to start but feel overwhelmed by the complexities of financing, property management, and market analysis. As a seasoned real estate investor, I’ve navigated these challenges and want to share a strategy that’s particularly advantageous for beginners: purchasing rental properties with a 70% loan-to-value (LTV) ratio, complemented by an additional seller’s second note for up to 20% LTV. This approach allows you to leverage up to 90% of the property’s value, requiring only a 10% down payment from you, plus associated fees.

The Power of Leverage in Real Estate Investing

One of the core principles of real estate investing is leverage—using borrowed capital to increase the potential return on investment. Our company offers a product tailored for first-time investors that maximizes this principle. By financing 70% of the property’s value and securing an additional 20% through a seller’s second note, you can enter the market with just 10% of the property’s purchase price out of pocket. This strategy not only lowers your initial investment but also amplifies your buying power, enabling you to acquire higher-value properties than you might otherwise afford.

Why This Strategy Works for Beginners

1. Lower Initial Investment: With only 10% down, you can conserve your capital for other investments, property improvements, or as a cushion for unexpected expenses.
2. Increased Purchasing Power: Leveraging up to 90% of the property’s value allows you to aim higher in the market, potentially securing properties with better appreciation prospects and rental income.
3. Learning While Earning: Managing a rental property provides hands-on experience in property management, tenant relations, and market analysis. The relatively low barrier to entry with this strategy means you can start learning the ropes of real estate investing without committing excessive funds.
4. Risk Mitigation: Real estate inherently involves risks, but starting with a smaller personal investment can mitigate your exposure. Plus, the property itself acts as collateral for the loans, adding a layer of security.

Potential Challenges and Considerations

While this strategy offers significant benefits, it’s essential to approach it with a clear understanding of the associated costs and responsibilities.

1. Higher Fees and Interest Rates: Financing a larger portion of the property’s value can result in higher interest rates and fees. It’s crucial to factor these into your cash flow calculations to ensure the investment remains profitable.
2. Seller’s Second Note Terms: The terms of the seller’s second note, including interest rates and repayment schedules, can vary. Negotiating favorable terms and understanding the implications on your overall financing structure is critical.
3. Property Management: Owning a rental property requires ongoing management. For beginners, this can be a steep learning curve, but it’s also an invaluable experience. Consider whether you’ll manage the property yourself or hire a property management company.

Getting Started with a Realistic Example

To illustrate how this strategy can work in practice, let’s consider a typical entry-level investment. Suppose you start with a $200,000 property. With our financing structure, you would need a 10% down payment, which amounts to $20,000, plus any additional fees. This initial investment is manageable for many beginners and opens the door to significant opportunities.

After holding the property for a seasoning period of 180 days (approximately 3 months), you have the option to refinance and cash out. This means you can potentially extract some of the equity you’ve built up, allowing you to reinvest into a new property. This cycle of buying, seasoning, refinancing, and reinvesting can accelerate your growth in the real estate market, enabling you to build a robust portfolio over time.

Feature of the Loan Program

Our loan program designed for first-time investors offers unique features that make it particularly appealing:

• 70% LTV with a Second Note Up to 20% Through the Seller: This combination allows for a total leverage of up to 90% of the property value.
• 30-Year Fixed Rate: Provides stability and predictability in your financing costs.
• Interest-Only Payments Up to 10 Years: This option can lower your monthly payments initially, improving your cash flow.
• Based on Property Value, Not Personal Income: This makes it easier to qualify, especially for those without a high personal income.

Property Types Covered:

• Investor 1-4 (Single-Family Residences, Condos, and 2-4 Unit Properties)
• Multi-Family (5+ Units)
• Mixed-Use Properties
• Commercial Properties (Office, Retail, Warehouse, Self-Storage, and Automotive)

Wrap-Up

Real estate investing is an excellent way to build wealth and secure financial independence, but getting started can be challenging. The 70% LTV with an additional 20% seller’s second note strategy is a powerful tool for beginners, offering lower initial investment requirements and increased purchasing power. While it does come with higher fees and interest rates, the benefits of leveraging your investment far outweigh the costs for many first-time investors.

In my opinion, this strategy, despite being slightly more expensive, is well worth it for those serious about breaking into real estate investing. It allows you to learn the market, manage properties, and build equity with a relatively small initial investment. If you’re ready to take the plunge, this approach can set you on the path to a successful and profitable real estate career. Starting with a property as affordable as $200,000 and leveraging the option to refinance after a short seasoning period makes this an accessible and strategic entry point for new investors.

Would you like to chat about your next investment? Let's grab some time to talk about how I can help you grow your portfolio. Give me a ring /text at 929-263-2017 or shoot me an email at lana@brickellintl.com. Let's make some money moves!

About the author: Alanna Avalone, a seasoned professional with a strong background in architecture and extensive experience in the real estate industry, dedicates her expertise to writing about real estate investing. With a passion for making complex concepts accessible, she crafts insightful articles and guides that help investors navigate the dynamic world of real estate. From analyzing market trends to exploring creative financing strategies, Alanna empowers investors to make informed decisions and grow their portfolios. Through her work, she aims to educate and inspire a new generation of real estate investors to achieve financial freedom and build wealth through smart and sustainable investing practices.