Pop Quiz: A Challenge in Creative Financing

Pop Quiz: A Challenge in Creative Financing

2 min read
Ali Boone

Ali Boone is a lifestyle entrepreneur, business consultant, and real estate investor, who has literally defined non-conformity when it comes to her career. Ali left her corporate 9-to-5 job as an Aerospace Engineer—despite the “dream job” status that came with it—to follow her passion for being her own boss and truly designing her lifestyle. She did this through real estate investing.

Experience
Using primarily creative financing to purchase five properties in her first 18 months of investing, Ali’s real estate portfolio started with pre-construction investments in Nicaragua and then moved toward turnkey rental properties in various markets throughout the U.S. With this success, she went on to create her company Hipster Investments, which focuses on turnkey rental properties and offers hands-on support for new investors and those going through the investing process.

Ali’s written roughly 190 articles for BiggerPockets and she’s been featured in FOX Business, The Motley Fool, and Personal Real Estate Investor magazine. She has over 300K views on her “Calculating Rental Property Numbers” video on YouTube, has sold over 200 copies of her Turnkey Rental Properties 101 eBook, and was awarded Top 100 Real Estate Investing Blogs & Websites. Her articles teach successful rental property fundamentals, investor psychology, and strategies to help get new investors started.

She still owns her first turnkey rental properties and she is also a co-owner and the landlord of a local property to her in Venice Beach.

In addition to running Hipster Investments and working as an active business consultant, she’s a pilot and teaches flying. She can often be found snowboarding, hiking, or volunteering in California prisons. Her ultimate goal is to one day challenge Tim Ferriss to a lifestyle design duel.

Education
Ali has two master’s degrees: a master’s in Aerospace Engineering from Georgia Tech and a master’s in Spiritual Psychology from the University of Santa Monica. Her undergraduate degree is a bachelor’s in Aerospace from Middle Tennessee State University.

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Instagram & Twitter: @HipsterInvest or @aliboonedotcom

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I need money! You have money? Where’s money? I need money. We all need money!

Although we are long since out of school, today I want to give you a pop quiz – an “exercise” if you will. I want to know what you would do? I no longer qualify for a mortgage since I’m self-employed. Sound familiar? Who even qualifies for a mortgage these days? Not a whole heck of a lot of people!

It’s easy to find a private lender for flips because the investor gets his money back in a relatively short amount of time. Assuming all goes well he may see his money plus a nice return in 3-6 months on average, earning probably 10-15% and up to 5 points or so. Not bad. Well what about rental properties? While rental properties (commercial or residential) are, in my opinion, the best long-term strategy due to the passivity of the income, the returns happen over a substantially longer period of time. This means that an investor who can help you finance a rental property is in it for the long haul which can severely limit your investor pool.

Past Creative Financing Methods

Here is what I have offered in the past to investors and it has worked out nicely. The investor puts up the cash necessary to buy the property, usually a 20% down payment and closing costs for the mortgage, and I take out the mortgage in my name and manage the purchase and ownership. He contributes capital, I contribute risk and management. In return, we split the net 50/50. The net includes profit or loss and a sale if we decide to sell. This has worked out great for me so far with the properties I currently own, especially since my ROI is technical infinite in this setup because I’m zero cash in. That is hard to beat.

However, this chapter of creative financing is officially over for me now. I left my corporate job four months ago meaning I won’t qualify for a mortgage again for at least two more years after I can show proven income (if even then). Now I can’t offer my half of the deal to an investor. I also don’t have enough cash on hand to fund an all-cash buy or a high down payment for private financing.

I have people email me all the time wondering new ways of creative financing. I can explain all day long the methods I know and that have worked for me, but what methods even I don’t know about?

Let’s talk about the property so you can see why I want this thing.

The Property

Property Details

Duplex, Built in 1945, Fully Rehabbed, Tenants in Place.

6 bedrooms total, 3 bathrooms total, 2246 square feet
Pic 1
Financials

Purchase price: $155,000

Market value: $180,000 (bonus!)

Total monthly income: $2,200

Total monthly expenses: $797

(Includes property taxes, insurance property management fee, vacancy estimate of 7% and repairs estimate of 5%, does not include a mortgage payment)

Estimated monthly cash flow: $1,403

Cap rate: 10.86%

The Challenge!

Are you as sold on this place as I am? What do you think? And how would you buy it, assuming you have no capital to put down on it and don’t qualify for a mortgage.

Experienced investors, where are you? Speak up! What creative financing options work in this scenario?
Photo: D Services