Purchase SFH cash or use a partnership?

5 Replies

Hello all, 

I am a longtime reader and fairly new to action in the DFW market. I was recently downsized out of my job while in the midst of looking for a deal in the DFW market. I am looking to build a portfolio of single and multifamily homes surrounding Dallas but with the unfortunate timing of being let go before doing my first deal, I will have trouble getting a traditional bank loan. 

I have enough cash to buy a deal in the ~$200,000 range (as well as a small amount of regular dividend income) but would prefer not to use all my capital on one deal. If I were to do this, I would want to rehab then put a mortgage on the property after a seasoning period (essentially the BRRR strategy) but, even if I force appreciation and it cashflows, I am still worried about finding a traditional lender.

I thought I might use a partner to co-sign a traditional mortgage with 20%-25% down and that way I could do several deals with conventional financing using my saved capital. What might banks think about offering an investment loan to two partners, one with decent steady income who just signs the mortgage and one who supplies the down payment? 

Any help and ideas are greatly appreciated!

@Max Malec Have you given any thought into trying to use the FHA 203K for your first deal? This loan product allows you to include rehab costs into the loan value on a property up to a 4-unit - all fo 3.5% down. This seems like it would fit in line with what you are trying to do for your first deal. You have to live in the property for a year as part of the deal though.

While your living there and when your done rehabbing, you can then look to acquire another deal, either with your own money or together with a partner. After the year is up, find another property to use the FHA. Seems like the best way ahead for you if you can find eligible properties.

@Marshall Leipprandt thanks for the reply. Yes, I have thought about using an FHA loan in a single family or to house hack a duplex-quad, and I may do this. However, even if I do this and put 3.5% down on, say, $200,000, I still have $193,000 that I would like to use to invest right away while I live there. Any additional deal I found after the FHA deal would still give me trouble with finding a lender.

Has anyone experienced issues bringing a partner to cosign the mortgage while the other party supplies the funds? And a side question - what would be a fair split for someone only signing the loan and not supplying any capital? Thanks.

@Max Malec Are you saying you have $200K cash to use or are you saying you are looking for a deal up to $200K?

Lenders look at W-2 income, monthly expenses, and debt. So if you have no W-2 at the moment, you can always get a job just to show them your working and brining in income. Debt to Income sounds like your biggest inhibitor, therefore, get started decreasing debt and increasing income. If that means using cash saved for RE to pay down debt, then so be it.

As far as partnering, having a good relationship with your partner is super important. If you don't know anyone who can be the capital side of the deal, you need to start networking and building trust/credibility. Just my two cents.

@Marshall Leipprandt yes, I have roughly $200k I would like to use on 3-4 properties and no debt. I was just wondering what banks would think of my controlling the day-to-day of the property and a parter only being passively involved past the mortgage signature with no real skin in the game. Thanks for your advice.

@Max Malec I would focus on finding another job first before doing anything real estate related.

After you do that I would fund your first deal with 20-25 percent down conventional.

I’m not a huge fan of all this “creative” financing stuff. Why do you need a partner for your first deal? You’ve got the money, you’re on BP so clearly you can learn or want to learn.

Also I’d consider going out of state. Living in DFW prior myself I can tell you those taxes are gonna eat your cash flow for breakfast. One state above you in ARkansas is much much lower. Your 200k could buy you 3-5 rentals in a market like that, likely in cash for all of them..