Buy and Hold Properties

7 Replies

I am a partner in Canini Properties LLC in San Antonio, TX and have a quick question. For my flips i usually use hard money to secure my properties, however if i was going to secure a buy and hold, what other way could i go about securing the finances for that property? Could I get a loan from the bank to purchase a house that I plan on renting out for a few years, and then sell it? To me using hard money to get a buy and hold would not allow for any ROI...Any suggestions?

@Joseph Canini  Your options for financing are: 1) a conventional mortgage through some lending institution.  This is likely your best option.  I've never heard of a mortgage with a pre-payment penalty, meaning you can sell or pay-off at any time.  2) Owner financing.  This is a matter of finding a motivated owner willing to do this.  Generally you will not get as good a  deal on the property, so if you plan to sell within a few years this will make finding the right deal more difficult.  3) Private lending.  This is different than hard money.  It is someone you know who is willing to be the bank for you.  The interest rate is almost always better than hard money but more than a conventional mortgage.  4) Partnering.  Brandon Turner talks about this.  What he provides  is  the deal and he splits it by some ration with the person who funds it.  They each take a portion of the profits.

If you find some other ways, let us know!

No answer to your question, but some questions for you if you don't mind.

What are your fees like for the hard money loans when you flip?

How has the market been in San Antonio for buying distressed properties?  Is it flooded or is there a fair amount of opportunity out here to get houses well under value?

I'm just out of the military and getting a real estate finance degree and would like to rehab and hold but currently sitting on the sidelines trying to learn as much as I can.

From my understanding, you could buy with hard money, rehab, finance after rehab with a traditional mortgage based on the equity in the house and the fact that you may already have a tenant paying rent.  I think it's tough to get a traditional mortgage on a distressed property and you won't get the rehab costs in there either.  

Again, I have no experience and I'm looking for answers more than I'm trying to give them, but that seems like the most successful strategy I've read up on.  Also, private money from someone you have a relationship with always seems like the best option.

@Brandon Turner

 just wrote a book on creative financing. I haven't seen it yet but he probably goes through some or all of these ideas:

Seller financing means talking to the seller and having them do some kind of creative financing solution. Subject to and land trusts, sandwich lease options and lease option assignments, wraparound mortgages, and installment sales are all ways to have the seller contribute to some kind of seller financing.  There are issues to deal with, such as due on sale clauses.
Private lending has to do with buying a property, and having an IRA retiree fund the deal. You work with an IRS approved custodian (eg Equity Trust, Pensco Trust, et al.) and create a brand-new IRA; these are called self-directed IRAs.

Self-directed IRAs have stiff penalties if you would to do not do them right. The best book in my opinion on self-directed IRAs is "IRA Wealth" by Patrick Rice, who has 30 years experience with Pensco Trust, a respected custodian out of Florida.

See Private Banker Concept here
Joint venture partners are in my opinion one of the best ways to get started in real estate. Here are a few examples.

Let's say find a  real estate deal and you have no money.  You find a doctor that has some lazy money around. This money of the doctor's is liquid. You see the doctor, and say:

"Hey Doc if I find a deal, would you consider partnering with me, this is how the numbers would work.

Let's say I find something that  we repair it, it can be sold for $100,000.

Our partnership will buy it for $40K, fix it up for $20K, it'll cost about $10,000 to sell with sales commissions and closing costs, so we'll net $70,000.

You'll be my funding partner, pay the $40K+ the $20K for fix up, then an agent will sell the property, and at closing, we will both split the $30,000 net.

I'll do all the work, you make 15,000 in 90 days or less. And I'll make $15,000.

If you have $60K out in an investment, and make the $60K back plus $15,000 profit, that's a pretty good rate of return in 90 days or less."

Another JV could be with a home seller has a light rehab.

Let's say the ARV is $100,000, and it takes $10,000 in order to fix it up.

Many probate houses are very old on the interiors; I like to call them "grandma houses".

These grandma houses can't be sold very easily because the kitchens and bathrooms are dates, 1970s style.

So, maybe you could be a "probate turnaround expert", and go to the executor or the probate attorney and let them know that you can get the house ready for resale and update the kitchen and the bathrooms. You use your private lender money for the rehab and have the house resold within 90 days.

So you have a joint venture agreement with the seller, fix the property up, resell it, get a JV Fee of say $10,000, and the heirs get the balance. You have to be careful and protect your interests. An attorney should prepare the JV agreement.

My friend @Rick H. knows alot about probate investing.
Bottom line, using creativity is important as a real estate investor. If you only use conventional financing, you are severely limited.

I have a question regarding your JV example with the Doctor. What is the standard split that one would pay to a private money source? Would appreciate anybody's feedback. Thanks

@Kirk King  

there is no standard split 

I recommend starting off at 50-50 if the doctors going to fund everything

If the numbers are huge say $1 million funding you might want to do 25% for you and 75% for the doctor

That's helpful; thanks for the post.

you use the hardmoney or private money to secure and rehab the buy and hold property,  you then refinance it (assuming you qualify) and take out most of the equity that you have created by rehabbing it. 

PS; I'm not a fan of hardmoney, it eats up too much of your profits and private money is easy to come by if you have an attractive deal.

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