Hello and my friends and welcome to another episode of Ask Marco where I answer your investing related questions. My question today comes from Amir and Amir says, hello. I just finished listening to all your podcasts episodes from back in 2014 up to the very last one that was posted last week. The contents were so great in educational. I really appreciate it. I can’t wait to have my first property with you guys, although I am not there yet and I need to save some capital. I want to plan my strategies and pave my way to that goal. I have some questions. Two most important questions are as follows. Number one, I was wondering if it’s better to partner with one or two of my friends were my brothers to purchase the first property. In that case, we can raise $20,000 much faster than what I would need to be able to save if that is a good idea.
[spp-player]
How does the mortgage work? Okay, so there’s actually two questions in this first question and he does have a second question, which I will try to get to here based on time. So what he’s really asking here is if it’s better to partner with his friends or his family, ultimately that’s what he’s asking. And the only reason he’d be asking this question from what I can tell is because it would allow him to raise that initial capital for the down payment and closing costs much quicker. So if he’s sitting there with $10,000 and he can partner with his friends or his brothers, uh, and come up with 20, 20 to 25,000 to get that first three bedroom rental, single-family detached property, then yeah, he could certainly achieve that initial goal a lot quicker. The thing is, is you first of all have to ask yourself, are you comfortable with a partner?
And I’m not saying that’s good or bad, it’s really just the personalities and who the person is and you have a relationship, a good working relationship. Uh, even if their family, you know, sometimes businesses create and ruffle feathers within a family and it creates problems and, and upset and then all of a sudden people don’t talk to each other and it’s kind of like going through a bad divorce in a way because ultimately that’s what might happen from that perspective. But there are a lot of people who do partner on businesses and partner on investing in many different things, particularly real estate. So the first question is not so much about the capital or the finances, it’s more about the compatibility of you and your partner, whoever that may be. You know, I’ve heard somewhere in the past that the toughest ship to sail is a partnership.
And so if that’s true, then you want to make sure that you’re picking the right partner. It’s no different than picking a spouse. You want to make sure that whoever you partner with, it’s for life, that you want to pick the right partner. Having said, if you do partner with friends or family and you’re able to raise more investment capital than you would on your own, or at least maybe quicker than you can on your own, then that might be a good idea. And so when you get to 20, 25, even $30,000, you’ve got enough there for the down payment and closing costs to get that first property. And of course, the down payment will differ depending on the location and the price point of the property. But it’ll get you going. And if you are expecting to be able to save more faster as time goes on, whether it’s through your employment or through a small business or growing your existing business, then great.
You know, just keep stacking and building that portfolio and letting it grow and watching it grow. So that’s the first part of the question. Uh, the second part is how does the mortgage work? Well, somebody’s going to need to qualify for the financing, especially if you’re going after conventional financing. Someone needs to qualify. And that’s pretty much the case most if not all of the time. So you just need to decide between the partners who would be the better person to qualify. If someone has really strong credit, that would probably be the person to go with because you’ll get the best rate and terms. If you don’t have qualifying credit, then there’s really no decision to be made. It’s going to obviously be the person who can qualify. What I recommend you don’t do as a suggestion here is go on the mortgage together. That may make you guys feel better.
It may make one person in particular feel better than the other person if you were both on it, but the reality is you are actually creating an opportunity cost for yourself because you can fit 10 conventional loans on each person’s credit. So if you are both qualifying and both going on that mortgage, even if one person doesn’t need to be on there, you’re essentially recording one mortgage on your credit, on your reports. That takes up one theoretical slot out of those 10 slots. So I don’t suggest you do that. If you plan to purchase more properties together as a partnership and you both qualify, then you can theoretically purchase and invest in twice as many by keeping it separate. So that just means that you take turns qualifying for that mortgage financing for each property that you purchase. I hope that makes sense. I’m going to just take a quick stab at your second question here for the sake of time and a and answer that.
So you’re asking is it better to save the first down payment in a checking or savings account or through a self directed IRA? Well the thing is is if you’re saving and a self directed Ira, then you have to purchase within that same self directed IRA or retirement account, whatever that may be. You can’t just withdraw those funds without paying penalties and tax out of a self directed IRA. You can purchase and invest within that self directed IRA. But just keep mind that whatever happens in the IRA stays in the IRA. So everything has to be in that IRA, which means that you now cannot partner with somebody because you cannot take your ira savings and combine them with someone else’s down payment monies and go in a property together. Because like I said, it’s all or nothing, everything’s in the self directed IRA and it stays in the self directed IRA or retirement account or not at all.
And you just can’t share those revenues and depreciation and other factors and benefits from the property if you have it in your Ira with your partner. So don’t do that. And last but not least, you said is there a good investment option that would work for low capital so that it can put my money on that instead of just savings? So I assume because of the low savings rate in the banks and whatnot, that you’re essentially getting zero if not a negative return. Where can you put your money? It depends on how long you want to hold that for. You could put it into treasuries or, or t bills, um, cds, whatever it may be. If it’s a short term hold, those really don’t pay much at all. If you have enough for a small hard money loan, you could do that. Uh, keep in mind that will be locked up for at least three to six months.
Um, but if you, if you don’t have $20,000 for that first down payment plus or minus whatever the number is, uh, you probably don’t have enough for a hard money loan either. So really the bottom line here is just figure out how to save as much as you can from whatever income and revenue sources that may be from so you can save stack and build and keep repeating that process. So that’s it. Um, yeah, I think he concluded by, by the way, I would love to have a consultation session if possible. Yes. If you want a strategy session, if you think you’re getting near that point or you need some direction, just contact us through our website and we will put you in touch with one of our investment counselors to get you moving and planning the next step. That’s it. All right, and me or thanks for that question. If you have a question about real estate investing or finance that you want me to cover on the show, simply go to passive real estate investing.com and click on the ask Marco Button. Help us share the show with other likeminded people who can benefit from it as well. Just visit us on iTunes and leave us a rating and review and if you haven’t already, of course remember to subscribe.
Thank you for listening. We’ll see you on the next episode.
– – – – –
Are you on track to achieve your financial goals? Income producing real estate is the most historically proven way to accumulate wealth and has created more financial freedom than any other means. You’re at a real estate, provides everything you need to invest in the best turnkey cash flow rental properties. Our simple proven system will help you create real wealth and passive monthly. Get your free strategy session with our knowledgeable Investment Counselors at www.NoradaRealEstate.com.