Funding options for a duplex??

Question

Ok so I'd like to hear others suggestions for  any other options that maybe I didn't think of for financing this deal.

I'm currently negotiating a duplex home.  Purchase price will be right about 100,000 maybe a little less.  The owner owns it free and clear but given her age she is not interested in seller financing and wants to be cashed out.   The each unit is currently renting for $800/month which is low for the area.  It can and should be getting in the range of $900-1050/month.  I've done the analysis and given the current rental numbers it would still cashflow using conventional loan for 80% and using a HELOC to supply the down payment at 8% for the remaining 20K.  This would be my preferred option because the interest and payment rates will be the best for the cash flow.

Options I'm looking into:

1) Getting a private lender to supply 25,000K at 8% interest only for 3 years then refinance and pay off the 25K (is it possible to do a 80% conventional loan with private lender providing the down payment?)

2) Getting a partner in on the deal but not sure of what equity or cash flow split.

I'm sure their are other options I'm missing but if anyone has any good suggestions I'd really appreciate it?

Stephen Lovett · Answer

@Barima Opong-Owusu

I think you'll do pretty well on that Single Family.  Which suburb is it in?

Richard Dunlop · Answer

Best of BOTH worlds!  Best Cash flow AND Best appreciation!

Adrian Chu · Answer

Cash flow seems pretty good where you are at.  Best of luck!

Barima Opong-Owusu · Answer

No her daughter convinced her to wait until Spring to sell when the market is hot.  When I reached out to her again recently she had decided to hold on to it.

Instead I ended up getting a 3 bed 1.5 bed ranch in a decent suburb of Detroit for 46,000.   It was renting for $900 which was undermarket.  Now that the tenant decided to leave once I purchased (by not paying rent).  This lead to an eviction and I just recovered the property a few weeks ago.  I'm currently in the process of getting everything cleaned up and painted so that I can get it back on the market.  2 months without any cash-flow and a lot of money going into it was definitely not what I was expecting.  I'm hoping to get a tenant in by June 1st but I don't want to get just any tenant and continue the headaches down the road.  I've posted it aat $1100 a month and I'm getting quite a bit of interest so hopefully things play out well.

I'll keep you all posted @Adrian Chu

Adrian Chu · Answer

I agree 8% seems a bit high for HELOC.

But the cash flow you mentioned seems pretty good for the purchase price you mentioned.

$900-1050/month x 2 units = $1,800-2,100 per month for a purchase price of approx. $100k!

Did you end up pursuing this deal?

Matt Spicer · Answer

@Barima Opong-Owusu 8% is crazy high for current Heloc rates.  I would spend a little time shopping around with your local credit unions.

Barima Opong-Owusu · Answer

@ScottWeaner the HELOC would be from my primary property since getting the loan puts me close to the max LTV they lend at, they said the rate will end up being higher. this was thru Huntington Bank

Scott Weaner · Answer

Would you be using the HELOC from another property? 8% seems high for a HELOC...mine is at 2.85%. I just used it to fund the down payment on a property.

Barima Opong-Owusu · Answer

@Dave Savage great point that will probably be the route I have to take.  If I can get a family member to (gift) the funds to me then I would still be able to get it in my name correct?  If thats not possible then most likely it will be the partnership route.  Thanks for all the suggestions.

Dave Savage · Answer

@Barima Opong-Owusu in most cases private lenders, especially ones you haven't worked with in the past won't want to come in in second position on a mortgage - and most banks wouldn't allow it either.  They want to see POF from you for the down paymnent.

Your best bet would be to find a partner who would put the money down and house in their name (or set up a LLC with two partners) and then if you were to manage the property and do all of the work you could split the profits 50/50 and on a sale you would split any profits above their initial investment 50/50.  One option - but it will depend on the partner and what % they feel they should be getting.

Remember 50% of something is better than 100% of nothing and it will get you into the game.