Model for using investor funds

2 Replies

Hello BP crowd, and thank you for your help.  I have access to roughly $500K private money that I've used for flipping in the past at higher interest rates.  I'm considering using that money on longer terms for a buy/hold strategy.  Here's the scenario/model:

1. Buy a four-plex and take a 10% private money loan to purchase/update the four-plex.  Say, purchase for $160K, rehab $40K - total loan, $200K.

2. PITI + Capex (5%) + Repairs (5%) = $2050/m. Gross rents are $2800.

3. I keep 6month reserves ($12K) and end up with a cash flowing four-plex.

4. A year goes by and I want to refi out of private money into an 80% loan at a lower rate, thus increasing my cash flow, decreasing my risk.

The idea is that I use OPM to purchase, rehab and rent the property, and that I can obtain an income based appraisal after a year (assuming 680+ credit) to value it high enough for an 80% LTV refinance. I walk away with a good asset, having spent little or no money and am free to repeat.

Hoping to get feedback on the model?

@Don Nelson  my only comment:  Work w/ bank(s) and/or mortgage brokers now rathar than later to ensure you understand all of their underwriting requirements & how they would value the property.  The goal:  Not to be surprised by the bank/mortgage broker when you exercise your plan.  

Thanks @Crystal Smith - Agreed.  I am checking with lenders in the area.  Seems like my little scheme may work, but worst case if the market changes, I should be able to sell it for a profit.

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