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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