How to start acquiring rental units with private lenders.

Question

Hi BP community!

I was hoping to get some advice about something. I'm looking into getting into the buying rehabbing renting and refinancing strategy in South Florida.

My challenge is that I don't have any assets or any savings to speak of. I work full-time as a Electronics design engineer, and have been doing it for about 2 years now.

My short-term goal in a nutshell is to acquire as many cash flowing properties as I can. I'd like to start out with single family rentals, and move up to multi-family units.

Right now I'm renting an apartment for about $1,000 a month and it seems like a big waste. I'd much rather use that money to pay interest on a private loan for three months which I can use to purchase and Rehab a property. Then cash out refinance enough to where I have equity in the property, but I can also pay back the principal on the loan in addition to a 12% to 20% return on my lenders investment. And repeat the process until I have enough properties with enough equity in them to where I can open a business line of credit and use my own cash to continue to grow my business.

My question is, how can I find private money lenders who are willing to work with me in this way?

Also, does private money lending count as a cash transaction? The reason I ask is because, I want to know if I run into any issues later on when I'm trying to Cash out refinance.

What's the best way for me to position myself to take advantage of these kinds of opportunities.

I'm looking forward to your comments and suggestions! Thank you

Rosston Smith · Answer

Hey man! A lot to great questions. Might I ask why you wish to start with SFHs?

Why not move out of your ridiculously priced apartment, and house hack a duplex and play far less? You'd still have only one unit to worry about, but would pay little to no mortgage and gain experience.

Regarding private lending. We all know people who have money. The best way to gain private lenders is to share your business plan (ideals) with as many other people as you can. You back up your ideals with history (experience).

Sam LLoyd · Answer

Those are a lot of questions... Here are my thoughts on some of them.... rent: You have to live somewhere, and rehabbing takes a lot of time/money, and is harder to do if you are living in the mess. One house I rehabbed came with a treehouse that my wife and I lived in till we had it done. However, rehabbing is a skill of mine. If you can't fix the place yourself, you probably shouldn't be planning on living in the mess.

future cash-out: If your lender has a deed of trust against the property for the value of the purchase and rehab... you will be refinancing the 'loan'. It does not have to be a cash out refinance unless you have other things to pay off like credit cards used for the rehab... or if you just want more money to play with. Cash out terms are a little worse, but with interest rates what they are now, I'd take the extra money every time.

How do you find these lender? Talk to people you know, because that's a requirement. However, without a track-record, this is going to be hard.

My advice: Get your expenses down... save your pennies, and get an owner occupied loan for a duplex. Depending on what these cost in your area, if you're dedicated, you can save up the 3% down, and living in the duplex with give you landlord experience, rental owning experience, and get your living expenses even lower (hopefully, if you buy right.)

Rosston Smith · Answer

No problem! Let me know if you have any more questions!

Mahmood Abdul-Rahim · Answer

Thank you for your quick replies.

@Sam Lloyd

I hear what you are saying about living in the property while it is being rehabbed. I actually did have in mind to do some of the rehabbing on my own. I can do things like painting and tiles--which I think would save a lot of money in labor. I figure, I'd only contract out the things that I can't--or shouldn't do like electrical, plumbing, roofing etc. I actually have a very small footprint as far as living space.

Regarding the future cash outs, I was thinking more of doing this in order to get my lender a better return in a shorter time. I figured this would get lenders to consider me. I'm not trying to build huge amounts a of capital up front. My initial goal is cashflow. Does that make sense? Have you seen this done before?

@Roston Smith and Sam Lloyd

I think that house hacking using a fha is a great idea actually. I'm just a little hesitant because Multi-families tend to be a little out of my price point. If for some reason, I can't find a good tennant, I still would like to be able to cover the mortgage and expenses on my own. That being said, I think that the fact that you both happened to suggest this, it definitely merrits more consideration.

@Roston Smith

Also, I figured SFHs are easier to flip should I need a different exit strategy.

Thanks again for taking the time to share some wisdom! :)

How to start acquiring rental units with private lenders.

How to start acquiring rental units with private lenders.

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