JV Or Hard Money Loan?

Question

Hi all,

I'm not sure how to approach this deal and I'd like some guidance.

I found a 10 unit apartment in Hickory that I'm in negotiation to put under contract.

The price we've agreed on is $425,000.00 Seller is not open to creative financing. I've discovered that rents can be raised EASILY from $475 to $650, putting the forced equity at $177,062.00.

Since seller wants to sell conventionally, I'm thinking I'll need to put 25% down, which is $106,250.

Where could I go to find money like that?

Would people JV with someone like me who doesn't have the money to put down? How would I structure a deal like that?

Or is it better to get a hard money loan here?

The exit strategy is over the next 3 years to fix up the units, raise rents, and do a cash-out refinance.

Ryan Blake · Answer

Account Closed Hard money won't like this deal too much. I am going from an assumption that you would use hard money to fund the whole project, not just a portion. No HML would only fund the down payment on another loan, especially if you won't have any of your money up on the deal. If you do you an HML you will probably need to supply 10% down plus cover the hard money closing costs and the title closing costs. You might be able to find a company that will stretch the loan out to 18 or 24 months, but that would be the extent of it. If you could do your cash out in 12 months, I think you would be in a better position for hard money.

The second obstetrical you will face is that the units are a ways from Charlotte the next closes population center of 100k or more. Most hard money won't take on rural property which this would be considered rural. I hope this helped shed a bit of light.

I think this was a very aggressive deal you are searching for if you don't have the $100k to put down. Unless you are a seasoned investor, I don't see what you would offer to a JV. Typically in JVs one person brings the money and the other brings the expertise. You may have a better chance doing a wholesale or selling your lead to someone else.

Don't be discouraged. Find  away to make some money by selling this deal off to someone else and then move on to something that will be more manageable for the cash you have on hand.

Jay Hinrichs · Answer

Just as an aside  I see a ton of people on BP make these same kind of posts and they kind of put the cart before the horse. IE they spend time scouting and looking at deals with no clue how to buy them or no means to buy them.

And maybe this comes from others always saying find a great deal and the money will find YOU.. well maybe but not really likely.

In my mind its better to go pitch your concept or idea put the money together then go forward and execute.  Just my way of thinking about it..

I know when I was a street level broker you simply would not put time into buyers that were all hat and no cattle..

Stephanie P. · Answer

Hey Ben

You don't need a hard money loan.  You can get a loan that works from a broker that specializes in loans between banks and hard money; no income verification, about 75% loan to value (maybe 80) and a rate in the mid-7's on a 5 year ARM.  Lots of lenders out there on that product.  You will have to have the historical operating agreement and value will be based on income, so that's a caveat.

Account Closed

Jay Hinrichs · Answer

you need a money partner.. no way to do this deal if you have no money.

once you have the money and if they want to be on title they are going to have to go on the loan as well.

or this is a friends and family deal.  I would say if you have access to close friends and family with this kind of money you can pull it off.. if not pretty tough sledding unless you have a decent track record.. and if you had a decent track record already you probably would not be asking this question.. IE I have no money how do I do this.

this is reality.. and you want it told to you straight so you can focus on what you need to do to get the deal done.

Adam Schneider · Answer

Account Closed It will be difficult to find a HML to do the loan you describe because the HML will want to be in 1st position, as will the bank. You'll need to find someone willing to provide the loan as a 2nd position loan, which will be challenging in the scenario you presented if it's not a friends/family scenario.

Ronald Rohde · Answer

Not to be sarcastic, but you save it from your current income. $100k is not much for commercial, so even finding this "great" deal means a lot less if you can't close or get it under contract first. Ask your friends and family for cash, you'll need more once you start renovating too.

Where is "Hickory" you don't have a state listed?

Account Closed · Answer

Frank, Adam, and Ryan, thank you for taking the time to respond and for the info you shared.

Account Closed · Answer

Thanks all. That’s Hickory, North Carolina.

Frank Wong · Answer

Completely agree here.  Step 1 you gotta get your money right.  Can't buy anything without money.  A lot of people wasting their time when they can't execute on a deal.  Just because you hear someone say they bought a property without their own money or no money down doesn't make it the norm.  An exception to the rule doesn't make it a high probability for success.

Similar to looking for a car. If I don't have the money to buy one why would I even waste my time to look.  I want to spend my time and focus on increasing my income so I have money to buy it.

JV Or Hard Money Loan?

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