How To Pay back partners?

4 Replies

Essentially, you want the property to pay for itself, including the mortgage. Your mortgage interest can be deductible on your taxes too. 

@Cherrell Thomas cash flow is the profit that's left after debt service, property taxes, property management, common utilities (if any), reserves for repairs (small things like leaky faucets, AC servicing, etc), and capital expenditures or capEx (larger things like a new roof,new HVAC, major plumbing overhaul...these are treated differently on taxes, written off over a specified longer period) and other expenses. The first item I mentioned, debt service, is where the answer to your question is. Debt service could be a traditional 30 year mortgage at 5% with low fixed payments. But it could also be an 8% private money loan with any range of terms, or a 12% hard money loan with full balance due in a year (sell or refi before that basically). Those are all just examples, but you can see how that debt service number could vary greatly between a 30yr mortgage at 5% and a hard money loan that may be 12% interest only with 1-4% fee up front. That variance in debt service payment can make or break the cash flow number. 12% sounds ridiculous, but if the deal will support it, it is simply another expense like a roof or kitchen cabinets. Private money loans or capital partnerships Will usually fall somewhere in between the cost of a traditional loan and hard money.

@Cherrell Thomas I apologize for the delay.  We often don't get notifications of replies unless you tag those you're responding to.  Similar to Facebook you type the "@" symbol and begin typing the name, clicking on the person when it comes up.  It'll then alert of a mention to that person.  Otherwise threads sometimes get lost in the mix.  Just a quick tip to allow you to reach out through your posts to any of those who's responses you'd like.

As for credit mattering, it all depends on the strategy. Traditionally, yes, credit matters. The "bread and butter" buy and hold investors put 25% down getting a mortgage on the remaining balance. Mortgage rates are a bit higher for investment properties, and unless you live in it too, owner occupied loans like FHA are out, but otherwise it is very much like getting an owner occupied mortgage. That being said, any time you are partnering with somebody who has the capital, taking on a hard money loan, or other 'creative' type financing, your actual FICO score doesn't matter AS MUCH as the deal itself. A private money or hard money lender is going to want to see that you're financially stable and have some 'skin in the game' so to speak, with some of your own capital. But if you've got time and/or other skills to devote, a less-than-perfect credit score can be worked around. Just don't try to dive in head first if your financial house isn't in order.

I'm personally in the process of cleaning up debt from a previous divorce, using a combination of home equity and hard work 6-7 days a week in my service business while I'm also hustling to build my business as a Realtor. My wife is hustling in our service business as well as finishing up classes in Graphic Design.  On top of those 'three jobs' we've got 5 kids aged 7-11 between the two of us.  I'd love to have already jumped on an investment property, but I still have some things to get in line before I feel like I'm financially prepared to. It drives me nuts that I don't have at least a small single family yet,  I'm keeping my eyes open for other partnership opportunities, but I've also realized that I may need to put hustle into helping others close deals to further put myself in position to myself. I'm hoping to be in a position to get our first property next year, and double every year after that.  Real estate investing is a long game that takes the input of money time and effort.  It sometimes does spill off some great short term profits but is really something to set you up for life if you give it the next decade or so.  So if you aren't in a position to buy a property tomorrow, still stick around bigger pockets and learn all that you can. Who cares if it takes you a year or two to buy your first property, 10 years from now you'll realize that the process to get to that first property is what set you up for all the ones that came after!