A lot of people ask me how I started from no money and got $100,000 in capital at only 19 years old. I only had $1,000. I had no credit. And I was basically living paycheck to paycheck.
I wasn't the typical real estate investor – even then. So I had to learn the hard way, by trial and error. Back to raising the capital you need…
I think you'll find this interesting. It's controversial but it's one I've used and many other investors have also used over the years.
Let's say you have $2,500 money in your savings account. I'll show you how to leverage that money without spending a dime of it.
Here's how you do it: Go to your bank or credit union and ask for a short-term passbook loan for 30 days. A passbook loan means you're using your savings as collateral. You'll continue earning interest on the portion of savings that's being borrowed, but the bank will put a hold on that money. As you repay the loan you'll have access to those funds. Some banks lend 50% of the account balance; others let you borrow up to 100%. A common interest rate is 3.0% above the interest rate being paid on the savings.
You won't see these types of loans advertised and it's a safe loan for the bank to make. If you have $2,500 in your savings account and the bank allows you to borrow 100%, you'll have another $2,500.
Take the borrowed money and open an interest-bearing savings account at another bank. Ask Bank #2 for a passbook loan and pay off Bank #1. You'll now be looked upon as a good credit-worthy client with Bank #1. And you still have $2,500 in your savings account that's now free for you to use plus you have another $2,500 savings at the other bank. You will have doubled your money in less than 30 days. However, you still have a hold on the money in Bank #2 until the loan is repaid.
Next, go back to Bank #1 and ask for a short-term signature loan. Since you repaid the first loan on time, you want to borrow $3,000 for 90 days without putting a hold on your savings account.
If the bank asks why you need the signature loan, simply explain you have bills to pay off and you have money coming in to repay the loan. When you receive the $3,000 loan immediately pay Bank #2 and then add the $500 to your interest-bearing savings account.
Now you have two bank accounts with a total of $5,500 and no holds and you have 90 days to repay Bank #1. I'd withdraw $1,500 from each and open a third account to establish more borrowing power!
After several months you can easily build your borrowing power to $5,000 from 3 different banks for a total of $15,000 cash you can use any time you want, plus you still have $2,500 in savings. As you build your borrowing power, you'll also want to increase your repayment time to 6 months.
I've had as many as 8-10 of these credit lines at various banks giving me access to $50,000 cash on a day's notice! Of course, we can keep going but your purpose is to invest in a property that will produce positive cash flow immediately and use the money at closing to repay the debt without using any of your own cash. Or, you could also fix-up the property, sell it, pay off the debt and put some cash in your pocket.
Many big investors use that same strategy on a much larger scale but this is a very creative technique I've used very successfully over the years.
Stay tuned for more financing techniques over the next several days.
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