I will be acquiring a 2 unit building using owner finance soon here in IL. Here are the details.
Down Payment: $0
Monthly Payment: $1,200
Term: 36 Months
Balloon Payment $103,000.
The repairs would cost around $20,000 to update it. I plan on doing some updates since it is already rented out ($2,100) with tenants, however, I don't want to come out of pocket to pay the repairs. I eventually plan to do a cash out refinance and recoup all of my money and pay off the seller. The ARV is well over 250k so I should be able to do a refinance at the end of the term. I also plan on using a Note servicer.
My question is, how do I secure funding for these kinds of deals, where I don't need the cash for a down payment or for the PP but instead I need the rehab money? Do I look for hard money lenders/private money lenders? How should I approach this and other deals similar to this moving forward? Also in the event where I have to put down money for future deals, which I had to come out of pocket to do so in the past, How do I find funding to pay for the down payment AND the repairs?
My goal is to use OPM to create a nice size portfolio. I wholesale many deals per month but want to take them down for myself.
Thanks for any input.
@Ali Barry Down payment $0, interest paid $0, money for renovation $0.
I'm here to tell you this won't work. I don't know your REI experience level but you have a skin in the game problem. It's a barrier to entry for a lot of people.
@Jaron Walling thanks for taking the time to respond. I have the money for the rehab and own a few rentals, but my cash is limited. I want to use OPM to scale. When you say this won't work, what do you mean? Are you saying i won't be able to secure this type of funding for the rehab since I have no skin in it due to not putting down money? What if in the other scenario, I had to put down money with the seller for the terms, would that change the situation?
Are you saying that I wont be able to do a refinance? Can you further explain what won't work.
I'm looking to find a solution rather than a this won't work. What will work?
@Ali Barry I'm saying you can't borrow your way to financial freedom regardless of what step you're on. The original post made it seem that way. The seller on this deal is very generous. They're giving you free money. They only way the strategy works is if the property is purchased below market.
Is $147K is a good deal? "The ARV is well over 250k". You need a educated, researched estimate for this, not just a number. I'd get with an agent and start asking questions about comps in the neighborhood. If you want to ReFi in the future it's a must.
Sorry guys, but IT IS possible. @Ali Barry you say you are doing wholesale deals right now, but dont quite have the cash to do the rehab??
I can tell you this is exactly the way I did it. A few wholesales to pay the bills. I had my sister get a Home Depot credit card and used it. I made the payments so it was not 100% no money down. BUT what I did instead of making 3k or 5k on a wholesale, I used the credit card, borrowed a few thousand $$ from some friends, got the rehab done, then sold the property. Instead of making a few thousand $$, I made 20k. THAT gave me some breathing room. I paid everyone back with cash to spare. I kept wholesaling until I had a super duper deal that I knew would make plenty of cash on the rehab.
I did it again, borrowing from my sister again until I had enough to do it on my own. I did not do the long term hold for several years. I would have liked to have had some rentals at the time, but you can only do what your cash flow is telling you to do. You might have to wait a little to hold long term. It is possible, you just have to get creative. Keep finding those deals and you will have lots of options.
@Jaron Walling I would have to respectfully disagree regarding not being able to use OPM to attain financial freedom. I am helping the seller but providing him with another solution to sell this property, since he doesn't have the funds to fix up the property and hasn't been able to sell it on the market due to the underlying mortgage. It is a win win situation. Nonetheless, I am aware of how much it is worth and have already done comps since I have access to the MLS. Thanks for the input, I will continue to find a solution for this. Thanks
@Rick Pozos Thanks for the input. I have the funds to do the rehab but I'd rather keep my money in my pocket since it is a big project. I am considering getting a private loan from a family member of mine to fund the rehab, then I was considering paying him interest on those funds, until I refinance the property in the next 3 years.
When you borrowed funds from your friends, how much did they charge you in interest? I'm curious how you set it up.
Right on man. Best of luck.
@Ali Barry well...hard money back then (2003,2004) was 18% plus 3 pts. Now, friends and family charge me 5% to 12%, maybe a point, maybe not. To do the rehabs with Home Depot credit card used to be 28% and I still walked away with 20k to 25k on my deals. Nowadays, if you charge more than $299 at a time, you have 6 months to pay with NO Interest.