Real Estate Professional · Los Angeles, CA · Member since 2014 · 30 posts · 4 votes
hey BP, I've been thinking about a no money (of my own) down strategy and wondering if it could work, and that would be borrowing/raising the 20% down to get a mortgage. like one might do on a large building/complex. I don't have a specific deal but a family friend recently purchased three units in Milwaukee at $80,000 renting two for $1,500. My goal is to join them in that same market,theoretically speaking if can achieve the same numbers (if not better) would funding the 20% with private money be an option. I Know The terms/specifics of the private $ would be a key factor. But has anyone one something like this?
The trick you're going to have is that you're going to have a very difficult time finding someone to essentially be a second lien on your property above the 80%.
Can it be done? Sure. Anything can be done. But how likely is it? Not very.
I don't know of any hard money lender that will lend you that 20% down payment. And I don't see any experienced/knowledgeable private money lender lending you the 20% either.
Even if you have an incredible deal where you're going to be all in at 60% of the ARV, the issue is that they'd still have to deal with that first mortgage. And that simply becomes too big a headache.
Now, if you can find someone willing to give you a personal loan and you want to use that, you might actually have better luck that way.
I just dont' see any lender willing to lend you 20% of the deal as the second lien holder.
What would be the motivation for them to do that? They'd be better off being the first lien lienholder on another investor's deal - even if its a smaller deal because they're limited in funds.
It's possible but banks will wants to see where your down payment money came from and may even require seasoning of the funds. You could do this with an FHA loan up to 4 units for 3.5% down if you intend to live there.
If your first mortgage is from a bank this is not possible. They want the down payment funds to come from you so they know you will feel some pain if you walk away. If you cover the 20% with a personal loan and do not inform the bank where the funds came from you may risk a fraud prosecution if you are unable to keep up with the payments.
We work with a local credit union who gives us commercial loans for our buy/holds. They finance 80% and don't care where we get the remaining 20% from.
To help us get started we found private investors to put up the down payment for us. These investors are given a 2nd lien position on the property until we have the loan for them paid back. To entice the investors we offer a 10% APR on their investment. We had to work hard to find those investors but they are out there.