How do you decide which finance strategy?

9 Replies

Originally posted by @William Bentley:

When looking at a property to purchase, how do you guys decide on which strategy you are going to go with (i.e. land contract, buying it out right, etc)?

  1. I would rather do cash if possible, so I can get better deals. 
  2. If I didn't have cash to just outright buy, I would probably try for a low DP loan, like conventional 5% or go to conventional 20%. 
  3. After that I'm thinking of using a HELOC.

That's my strategy anyways of my stepping stones to try to fund a deal. After those sources run out, I'll hopefully have made enough connections by then that I can do private or hard money loans.

Good luck! 

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Hi @William Bentley, We invest the time into building models to plug numbers into to lay out what the results would be with each strategy we employ. If you are good with Excel, you can actually build some pretty good modeling. We have a "Variables Section" where we load in all of the variables such as As Repaired Value (ARV), rehab budget, Loan information (interest rate, points, etc), estimated turn time (buy-rehab-sell...or whatever you are doing), a reserve for unexpected contingencies, and our proposed buy price (we have a lot more variables we load...these are simply the examples). We then have sections to use those variables to calculate Buy Side Expenses, Rehab Expenses, Hold-Time Expenses, and Sell Side Expenses. You can use past Settlement Statements to determine your normal costs of a deal to populate the formulas. For instance, The State of Florida charges Doc Stamps Taxes on the deed, so you would want to multiply your ARV/expected sales price by 0.007 to get that cost for your sell side. You also would put things in like your real estate commissions, etc. We then have a section that calculates many different scenarios. For instance, if you are doing a fix-n-flip model, you would want to know what your raw profit and your annualized profit would be in both $s and %s if you borrowed X amount or if you simply paid cash. Once you have a solid model in place, you can relatively quickly plug in numbers to allow it to kick out what your yields might be on different scenarios. It really saves a lot of time if you invest some time into building good modeling. It certainly does for us. I hope that helps. Doug

@Doug Smith HUGE help. I'm actually going to set up an Excel sheet now just to start to get a feel for what you are saying. @Dan Barli I have not set up parameters as I am just getting started into the business. Do you have any good points where to start or how I can possibly follow someone, even help, just so I can start learning? I appreciate all the feedback guys.

I would recommend that you read more of the material throughout this site to get more specific about your goals and targets. Especially if you're just getting started, learn as much as possible. Go to local REIA meetings to meet other professionals and other networking groups. Try to find out who is doing the things you want to and see if you can pick their brain. Take them out for a coffee or buy them lunch. It would be the best use of your time.

@William Bentley

I always review past settlement statements from other closings to make sure that I’m not missing anything for my buy-side or sell-side expenses. When I’m working with a client and helping them set up a model, I find that using old settlement statements is the best place to start. Some fields will be fixed, like the title company closing fee. Other fields will be variable and based on things like purchase price or loan amount, like Title insurance. You just have to make sure that you get formulas right. The more you do, the more you will end up tweaking it, and the more accurate it will get. I hope it helps