"Good" Deals Hard to Find; Funding is "Easy" - or NOT!

Investor · NH · Member since 2016 · 134 posts · 61 votes

BP Experts, First of all, please remember that "referrals for lenders or loans must be placed in the BP Marketplace"...so don't reply with that here. However, since I've been doing part-time real estate investing the past few years, I continuously hear about how finding "good" deals today is hard, but once you find a "good" deal, getting financing is "easy". I have a pool of 40 family/friend investors who are counting on me to bring good deals to table for potential action. Lately, I've focused on places as diverse as AL, NH, and DC. Banks are asking for 40% down to get non-recourse situations or ~5% loans, while my investors all want 15-20% cash-on-cash, and Hard Money lenders who give anything in 8-9% are hard to find. So what really constitutes good deals and easy money in mid-2018??!

0 Reply

23 views

Most Popular Reply

Omar Khan

Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes

@Jim Froehlich The whole mantra of "find a good deal and the money will follow" is either said by newbies (because they read something online) or gurus who want you to pony up the cash to buy their program.

As you're finding out, each leg of the real estate journey is hard. Even if you find the right deal, securing the right type of funding can be a pain. Even if you find the right deal and secure the right funding, you might run into property management issues.

Your investors (15-20% CoC) have unrealistic expectations. As a side note, the average stock market returns over multiple decades average ~8.5%. Investors in illiquid assets in fragmented assets can only hope to beat that average long-term.

40% down seems a bit high. What type of properties are you looking at?

4 Reply

See this reply in the discussion

9 Replies

Jump to latestLatest

Sort by

Omar Khan
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y
@Jim Froehlich The whole mantra of "find a good deal and the money will follow" is either said by newbies (because they read something online) or gurus who want you to pony up the cash to buy their program.
As you're finding out, each leg of the real estate journey is hard. Even if you find the right deal, securing the right type of funding can be a pain. Even if you find the right deal and secure the right funding, you might run into property management issues.
Your investors (15-20% CoC) have unrealistic expectations. As a side note, the average stock market returns over multiple decades average ~8.5%. Investors in illiquid assets in fragmented assets can only hope to beat that average long-term.
40% down seems a bit high. What type of properties are you looking at?
4 Reply
Michael Plante
Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
8y
Originally posted by @Jim Froehlich:

BP Experts, First of all, please remember that "referrals for lenders or loans must be placed in the BP Marketplace"...so don't reply with that here. However, since I've been doing part-time real estate investing the past few years, I continuously hear about how finding "good" deals today is hard, but once you find a "good" deal, getting financing is "easy". I have a pool of 40 family/friend investors who are counting on me to bring good deals to table for potential action. Lately, I've focused on places as diverse as AL, NH, and DC. Banks are asking for 40% down to get non-recourse situations or ~5% loans, while my investors all want 15-20% cash-on-cash, and Hard Money lenders who give anything in 8-9% are hard to find. So what really constitutes good deals and easy money in mid-2018??!
Who told your relatives you could get them 15-20% COC?
1 Reply
Ann Bellamy
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
8y
And I'd forget about non-recourse funding. Any hard money lender or any conventional commercial lender will require personal guarantees. And of course conventional residential funding is in your own name anyway. Non-recourse is for large commercial projects and something the gurus talk about to get you to buy their crap.
2 Reply
John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
8y
The less leveraged you are the easier funding is. Have free and clear properties? Cash-out refinance is EASY! I just secured a loan, rolled 4 small mortgages into one, reduced monthly outlay $2800/month, and now have three more properties free and clear to leverage if a deal presents itself. The lender found me on BP. I have been making offers on MLS listed properties with no success recently as everything seems well over-priced to make sense.
1 Reply
Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
8y
15 to 20% cash on cash is unrealistic and extremely expensive money. Sounds like you have the wrong passive investors lined up. Almost all the deals I see offer 6 to 8% preferred returns going in. The total IRR is higher because you generally have principal pay down on the note, some mortgage interest deduction, tax depreciation write down, and ongoing (hopefully) rental increases. Also big increases in value can push IRR further upon exit.
I find passive investors with millions tend to be fine with 6 to 8% and prefer projects with equity growth long term and sponsors who are experienced for more safety.
You as a sponsor do not want to do deals where the investors and lenders are getting some insane interest rates and money because it will set you up for huge failure. Even if the heavens align and you pull it off where everyone is paid and you make a tiny profit they will expect it again the next time over and over. Hitting those metrics on a consistent basis is not realistic.
Eventually if you do take that high money after a few deals the sponsor seeks out cheaper debt and cheaper investment money in the marketplace. Nobody wants to work their butt off to make a little when everyone else at the table is eating the steak.
Podcast Guest on Show #47
NNN Invest53 Reviews
Website View Page
2 Reply
Jim Froehlich
OP
Investor · NH · Member since 2016 · 134 posts · 61 votes
8y
Thanks to you all for the great inputs!
0 Reply
Jim Froehlich
OP
Investor · NH · Member since 2016 · 134 posts · 61 votes
8y
These are local NH banks that have said 40% down on local 5+ units or 1-4 Unit used as Short-term rental with solid management plan and local investors might be feasible. Your inputs have me feeling good about 11-14% cash-on-cash conservative estimates. Thanks again!
0 Reply
Nghi Le
Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
8y
Right now, there is a lot more money than there are deals. Based on the law of supply and demand, your hypothetical statement rings true. Based on my experience, it's also true. I see people with money flocking towards bad deals all the time here on the west coast, while others are just waiting on the sidelines for a decent deal to show up. I do believe that if you show us a truly good deal, it won't be hard to get it funded, either as debt or equity financing.
A "good deal" is pretty relative. Think of how turnkey operators work. They sell properties at retail pricing (or even above retail), which isn't a deal to people in the local market, but it's a deal for those living in other markets that don't cashflow as well.
Cheap rates and non-recourse don't go hand-in-hand. There are HMLs out there who will do non-recourse loans, but with higher down payment and higher rates, it never seems worth it to me. You may want to find new investors because they sound more expensive than hard money. And hard money in the 7% - 8% range do exist, but they're only available to those with good experience and credit.
2 Reply
Jim Froehlich
OP
Investor · NH · Member since 2016 · 134 posts · 61 votes
8y
@Nghi Le, thanks for your well-thought-out response and insight!
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.