Interested in doing deals using none of your own cash?
Got your attention, right?
Well, Jamel Gibbs here to talk to you about just that – how to do deals without using your own money. By following my strategy, it places you into a position to quickly scale up your business—to move out of the rut of wholesaling only. This is just one more strategy to help you get there.
In Part 1 of Scaling Your Business with Funding, I explained the difference between a private money lender and a hard money lender. And I touched on what a gap lender is. Make sure you go back and check out that lesson so you’re caught up for this informative lesson.
Gap Lender
So, gap lender refers to money that each of you has access to and you don’t even know it. This funding could come from a co-worker. Or a neighbor. Or a relative. They have extra capital, but they don’t have enough to fund an entire deal.
One of the best times to approach someone to become your gap lender is during tax season. People are getting their refund checks, and they’re be more agreeable to hear about an opportunity to earn a sizeable return on their money. Talk to them about how they can partner with you by filling the void on your next deal.
Hard Money with Gap Funding on the Side
Hard money is easy to get… anybody can get a hard money loan if the deal is good.
The problem is you’ll need several thousand more just to make the deal happen. This is where the gap funding comes in. Gap funding provides that extra money you need to bring to the table to make the deal happen.
Let’s say your brother has an extra $10k... he wouldn’t be able to fund your entire deal, but he could fill the void. It’s up to you to explain to your brother how he can help himself by increasing that stash he has. And he can do that by investing it in your deal that you have lined up.
Hard Money Requirements
Go to a hard money lender and find out what their requirements are. You can find a hard money lender who will fund 100% of the deal plus the rehab. All you need to do is bring the upfront points and the closing costs to the table.
For an average $100k loan, you’ll need anywhere from $5k to $8k. A good rule of thumb when it comes to hard money lenders is to factor in 8% of the loan amount to arrive at the amount of cash you’ll need to close.
In this case, if it was a $100k loan, you’re looking at coming up with $8k.
Even if you had that amount of your own money, I recommend that you never use any of your own money for your deals. I’ve done hundreds of deals, and I’ve never once used my own money to buy real estate.
You can do the same thing by using your gap lender. Again, this is an individual that you know who has extra cash laying around.
Create an Agreement
It’s always a good idea to find your gap lenders before you need them. Have them waiting in the wings until the deal(s) come along.
Create an agreement between you and that gap lender, bringing them in as a partner. I like to split the profits with my gap lender.
So, if it’s a $30k deal, I’ll give them $15k of that profit.
You want to make it a no-brainer situation for your lender. Guard against becoming greedy – make sure that everyone in the deal comes out as a winner.
Think about it...
If you can make $15k from a deal that requires none of your own money, you’re still way ahead. Now your lender is more than ready to work with you on the next deal.
Scaling Up
Think about this to scale up your business…
Take one of your deals that you’re currently looking to wholesale, and instead of flipping it, rehab the deal and make 10X the money. The average wholesale deal will bring between $5k and $10k. The average rehab will bring between $30k and $60k.
Begin Now!
Now is the time to begin talking to the people in your sphere of influence and convincing them to gap fund a deal with you. Explain about the return and that it’s low risk because their money is backed by the real estate itself.
The more deals you can do, the quicker you can begin to scale up and start increasing your profits exponentially.
Your Turn
What’s been your experience in bringing in lenders? Had you heard of gap lending before? Leave your comments below. We love hearing back from you.
Talk to those in your sphere of influence about becoming a gap lender
Use tax time to your advantage when people are liable to have extra income to invest
Never use your own money to fund your deals
Move up from wholesaling to rehabbing to grow your income and scale your business
Jamel Gibbs
is also a mentor for other real estate investors helping them to achieve their goals. He is the owner of Mill Street Properties LLC and he invests in real estate all over the United States. Jamel's skills and drive were the winning combination to develop his efforts into a repeatable system. This system is now making him as well as many others tons of money.