Joel Miller stands by the old adage that luck is simply being prepared when opportunity arises.
Preparation and being in the right place at the right time is how he said he’s built up his real-estate portfolio in Erie County, Pennsylvania, over the last four decades.
For example, he once owned a unit in a set of row-homes, and his tenant had asked him if the neighboring properties could clean up their appearance a bit more. So he looked up who owned the units and passed along the request. As it turned out, it was a doctor with his own practice who had just been given orders to get rid of sources of stress in his life, and who had been looking to offload the properties.
While Miller didn’t have enough cash on hand to buy the 10 properties outright and the funds needed to fix them up, he thought creatively and made a proposal to the doctor: he would buy the properties, but he would start making payments on them 18 months later to give him time to rehab them and find tenants. The deal was favorable, but he was taking on a substantial amount of work and solving a problem for the seller. Decades later, Miller said, he sold the properties for five times what he paid for them.
Some might say he had a lucky break, but Miller — who is the author of the forthcoming book “Get Rich Slow (and Wealthy Too!): How to Confidently Add Rental Real Estate to Your Life and Not Regret It” — was prepared by real-estate investing and financing knowledge he had built up over years.
Throughout his real-estate investing journey, many of Miller’s deals came about through seller financing and being at the right place at the right time. And he says the strategy is still viable today for new investors.
Seller-financing is essentially when the seller of a property acts as the bank. Deals can take a number of shapes. Typically, the buyer makes payments on the properties through the years, sometimes with interest and sometimes with so-called balloon payments, where the buyer owes a chunk of money at a set time. For instance, the owner of a $1 million property may structure a deal so that the buyer pays $250,000 upfront, then makes payments for 10 years, and then owes a final $250,000 at the end of the 10 years to completely pay off the property.
Miller said the best way for new investors to secure a seller-financed deal is to first educate themselves about the basics of real-estate investing, and then join a local real-estate meetup group to build relationships. Most areas have them, and many can be found on Facebook, he said.
“If you spend some time learning and associating with like-minded people, the deals are going to come,” Miller told Business Insider.
Seller financing also often produces more favorable deals than one can get at the moment with mortgage rates around 7%, he said.
Another financing strategy Miller employed to build his portfolio was using a hard-money lender. Hard-money lenders allow investors to borrow money more quickly and with less red tape than with traditional lenders. But their rates are higher, often coming in around 15%. Loan terms are much shorter, however, usually spanning from several months to a couple years.
Miller, who has recently started hard-money lending himself, said that investors should only use hard money-lenders after they are more experienced and have a few properties under their belt. But when the time comes, the speed at which one can borrow hard money will allow investors to scale more quickly, he said.
“Hard-money lending is probably something that’s going to help you grow your portfolio faster than any other thing,” Miller said. “That is because the hard-money lender is not going to put you through much scrutiny at all really. It’s more based on the equity that’s going to be in the property and a general assessment of your ability and experience.”
Hard-money lending is often used when investors want to rehab a property and then sell it or refinance it. By rehabbing it, they raise the property’s value ideally to levels higher than the original cost of the property and the rehab combined. The extra value the investor creates they then keep.
Another strategy for scaling up early
Maybe the best way for beginners to start building up a portfolio today is to use a government loan, Miller said.
New Federal Housing Act (FHA) rules now allow one to buy up to a four-unit property for just a 3.5% down payment. The buyer just has to live in one of the property’s units for at least a year.
“And then the next step is you nice to a nicer either multi-unit or single-family home, and you don’t sell the first property, but now you rent out the spot that you used to live in, and you just keep rolling,” Miller said.
On a recent episode of the BiggerPockets Podcast, mortgage advisor Jeff Welgan also pointed out that there are thousands of down-payment assistance programs around the country, which are searchable with Freddie Mac’s DPA One platform.
“It has not been this easy in 15 years to buy your first house with little to no money down,” Welgan said. “Most of these programs range anywhere from a hundred percent financing all the way up to 105% financing, depending on the state.”