Cash only deal with little capital

3 Replies

I am new to real estate investing and development. I have done plentiful amounts of research but have not yet moved into the actual "practice" of owning real estate. I Have come across a good deal on a rehab and rental property that is well within my buying range. The ROI on the property is encouraging but the listing is cash only.

With little capital, not enough to purchase with cash, what routes can I take to make this deal happen?

Cash only can be deceiving. I bought a triplex last august that the seller had listed as Cash only, but in reality they were just looking to be able to walk away with their money in their pocket. I went and got a traditional mortgage and everything worked out fine.

Other ways are partnership or maybe hard money.  May be difficult if you are new however.

I have found that the best thing to do is find out the reason for selling so you can provide a solution.  Perhaps the seller is in financial trouble but only needs 40% of the sale price in cash immediately.  Find out what they need and work with that to see if you both can come to a solution.

Jared, thank you for your input. That has given me a new outlook on it. 

I think I will talk to the seller and see the situation they are in. Hopefully that will provide some insight to forming a deal.

In regards to the hard money loan, what do you see as the biggest downfall to that route? I plan to rent the units out after rehab not necessarily flip immediately.

Personally I do not have experience with it, but I have learned that unless you either have experience of doing it in the past (with success), a good relationship with a hard money lender, or just an absolutely amazing deal it might be hard to get the hard money that will make the deal work. Your interest may be higher or points charged higher, all factors that once you run the numbers again you could find out that your margins have thinned to a point that it may not work if something goes south. As they say projects cost twice as much and take twice as long as you think.

I though I was going to do a rehab on a unit for $5k (just some cosmetic stuff) it turned into a 10k project and went from 4 months to 14 months.  I was doing all the work myself with explains the cost and time, but one thing after another came up that I wasn't expecting.  Initial review thing x looked fine but after doing y we find out that x needs replacing or repairing.

The other thing too is that after you have the hard money loan and rehab is complete you will need to finance into a conventional loan most likely.  If you have limited capital now where are you going to come up with the additional capital for the conventional loan?  You'll need a down payment most likely with your hard money lender, but you'll also need one for the mortgage.

for example:

lets says the initial investment to buy and rehab the property is $100k.  Hard money might ask for 10% so $10k so they know you have some skin in the game.  After it is all complete you'll go to a bank to get a new loan to pay back your hard money lender.  The bank may also ask for a 10% down as well.  So if you used your limited capital for the hard money lender either you need to wrap in extra cash for a down payment with the bank (which I'm not sure if they will allow) or come up with additional cash for the bank down payment so you can pay back your hard money lender.